Non-collateralised Structured Products. STANDARD CHARTERED BANK (incorporated in England with limited liability by Royal Charter 1853) Sponsor

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1 The structured products involve derivatives. Do not invest in them unless you fully understand and are willing to assume the risks associated with them. Non-collateralised Structured Products Issuer STANDARD CHARTERED BANK (incorporated in England with limited liability by Royal Charter 1853) Sponsor STANDARD CHARTERED BANK (HONG KONG) LIMITED (incorporated in Hong Kong with limited liability) Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited (the Stock Exchange ) and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this base listing document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this base listing document. This base listing document, for which the Issuer accepts full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Stock Exchange s Listing Rules ) for the purpose of giving information with regard to the Issuer and the structured products referred to in this base listing document. The Issuer, having made all reasonable enquiries, confirms that to the best of its knowledge and belief the information contained in this base listing document is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this base listing document misleading. We, the Issuer of our structured products, are publishing this base listing document in order to obtain a listing on the Stock Exchange of our warrants and our callable bull/bear contracts ( CBBCs ). We will refer to the warrants and the CBBCs as structured products in this base listing document. Investors are warned that the price of the structured products may fall in value as rapidly as it may rise and holders may sustain a total loss of their investment. Prospective purchasers should therefore ensure that they understand the nature of the structured products and carefully study the risk factors set out in this base listing document and, where necessary, seek professional advice, before they invest in the structured products. The structured products constitute general unsecured contractual obligations of the Issuer and of no other person and will rank equally among themselves and with all our other unsecured obligations (save for those obligations preferred by law) upon liquidation. If you purchase the structured products you are relying upon the creditworthiness of the Issuer and have no rights under the structured products against (i) the company which has issued the underlying securities; (ii) the trustee or the manager of the underlying fund or trust; or (iii) the index compiler of any underlying index. If we become insolvent or default on our obligations under the structured products, you may not be able to recover all or even part of the amount due under the structured products (if any). The distribution of this base listing document, any addendum and the offering, sale and delivery of structured products in certain jurisdictions may be restricted by law. You are required to be aware of and observe such restrictions. Please read Annex 3 Purchase and Sale to this base listing document. The structured products have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act ), and may not be offered or sold within the United States or to or for the account or benefit of U.S. Persons (as defined in Regulation S under the Securities Act). Base Listing Document dated 22 April 2014

2 IMPORTANT If you are in doubt as to the contents of this base listing document, you should obtain independent professional advice. Copies of this base listing document and its addendum (if any), the relevant supplemental listing document (together with a Chinese translation of each of these documents) and other documents listed under the section Where can I read copies of the Issuer s documentation? in this base listing document may be inspected at the offices of Standard Chartered Bank (Hong Kong) Limited at 15th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. We do not give you investment advice; you must decide for yourself, after reading the listing documents for the relevant structured products and, if necessary, seeking professional advice, whether our structured products meet your investment needs. TABLE OF CONTENTS Page SUMMARY OF OUR STRUCTURED PRODUCTS... 1 SPECIFIC FEATURES OF OUR STRUCTURED PRODUCTS MORE INFORMATION ABOUT OUR STRUCTURED PRODUCTS AND OUR LISTING DOCUMENTS RISK FACTORS TAXATION INFORMATION ABOUT SCB AND THE GROUP STATUTORY AND GENERAL INFORMATION ABOUT US ANNEX 1 PART A TERMS AND CONDITIONS OF CASH-SETTLED STOCK WARRANTS PART B TERMS AND CONDITIONS OF CASH-SETTLED INDEX WARRANTS PART C TERMS AND CONDITIONS OF CASH-SETTLED WARRANTS RELATING TO THE UNITS OF A FUND OR TRUST ANNEX 2 PART A TERMS AND CONDITIONS OF CASH-SETTLED CALLABLE BULL/BEAR CONTRACTS RELATING TO A SHARE PART B TERMS AND CONDITIONS OF CASH-SETTLED CALLABLE BULL/BEAR CONTRACTS RELATING TO AN INDEX PART C TERMS AND CONDITIONS OF CASH-SETTLED CALLABLE BULL/BEAR CONTRACTS RELATING TO THE UNITS OF A FUND OR TRUST ANNEX 3 PURCHASE AND SALE ANNEX 4 A BRIEF GUIDE TO CREDIT RATINGS ANNEX 5 FINANCIAL INFORMATION RELATING TO SCB ii

3 SUMMARY OF OUR STRUCTURED PRODUCTS The types of structured products that we may issue include, but are not limited to: cash-settled stock warrants, cash-settled warrants relating to the units of a fund or trust, cash-settled index warrants, cash-settled CBBCs relating to a share, cash-settled CBBCs relating to an index and cash-settled CBBCs relating to the units of a fund or trust. Each type of our structured products will be subject to a separate set of master terms and conditions either as set out in Annex 1 or 2 (as applicable) to this base listing document (for the structured products listed above) or as set out in the relevant supplemental listing document (for other types of structured products). For each issue of our structured products, we will publish a supplemental listing document setting out the specific terms. The specific terms set out in the relevant supplemental listing document supplement and amend the applicable set of master terms and conditions to form the legally binding terms and conditions of that issue of structured products. We describe below the main features of the different types of our structured products. General features of our structured products: Issuer: Sponsor: Issuer s long-term credit ratings (as of 17 April 2014): Standard Chartered Bank ( SCB ) Standard Chartered Bank (Hong Kong) Limited AA- (Negative outlook) by Standard & Poor s Credit Market Services Europe Limited ( S&P ) A1 (Stable outlook) by Moody s Investors Service Hong Kong Limited ( Moody s ) The credit ratings are only an assessment by the rating agencies of the Issuer s overall financial capacity to pay its debts respectively. AA- is among the top three major credit rating categories and is the fourth highest investment-grade ranking of the ten investment-grade ratings (including + or - sub-grades) assigned by S&P. A1 is among the top three major credit rating categories and is the fifth highest investment-grade ranking of the ten investment-grade ratings (including 1, 2 and 3 sub-grades) assigned by Moody s. Please refer to the brief guide in Annex 4 to this document to what such credit ratings mean. Ranking of our structured products: Upon the occurrence of a mandatory call event (in the case of our CBBCs) or upon exercise, our structured products will become our direct, unconditional, unsecured and unsubordinated obligations ranking equally with all our other direct, unconditional, unsecured and unsubordinated obligations. 1

4 Liquidity provider: Form: Standard Chartered Securities (Hong Kong) Limited or such other entity appointed by us as may be specified in the relevant supplemental listing document. We will describe in each supplemental listing document our obligations to provide liquidity in our structured products. In registered form subject to and with the benefit of a deed poll made by us. Each issue will be represented by a global certificate registered in the name of HKSCC Nominees Limited (or its successors) or another nominee of Hong Kong Securities Clearing Company Limited as holder, and deposited within the Central Clearing and Settlement System ( CCASS ). We will not issue any definitive certificates for our structured products. Use of proceeds: Further issues: Delisting of the company, fund or trust underlying our structured products: Adjustments upon certain events affecting the company, fund, trust or the index underlying our structured products: The net proceeds from the issue of our structured products will be used for the general business purposes of Standard Chartered PLC and its subsidiaries (the Group ). We can issue further structured products to form a single series with an existing issue of our structured products. If the shares of the company or the units of the fund or trust (as the case may be) underlying a particular issue of our structured products are delisted from the Stock Exchange or the underlying exchange (as the case may be), we may adjust the terms of that issue as further detailed in the relevant terms and conditions of our structured products. If certain corporate events occur in connection with the company, fund or trust underlying our structured products, or if certain events have occurred which materially modify the underlying index, we may make adjustments to the terms of that issue to account for the effect of such events. Please see the relevant terms and conditions of our structured products for further details. These events and the possible adjustments we may make are set out in detail in the applicable terms and conditions. Early termination for illegality or impracticability: Governing law: We may early terminate our structured products due to illegality or impracticability as further detailed in the section headed Risk Factors in this base listing document. Our structured products are governed by the laws of Hong Kong Special Administrative Region of the People s Republic of China. 2

5 SPECIFIC FEATURES OF OUR STRUCTURED PRODUCTS Warrants: Warrants are structured financial products, the value of which is derived from the price or value of another asset. The underlying asset may be shares of a company, units in a fund or trust or an index. Cash-settled stock warrants: The underlying asset of stock warrants is shares of a company. The shares may be listed in Hong Kong or overseas. Our cash-settled stock warrants provide for cash settlement only, which means that physical delivery of the underlying shares will not be available as a method of settlement; instead, upon the exercise of each board lot of warrants, we will pay the warrantholder a cash amount equal to (1) the product of (i) the entitlement, (ii) the difference between the average price of the underlying share and the exercise price (in the case of call warrants) or the exercise price and the average price of the underlying share (in the case of put warrants), and (iii) one board lot, and divided by (2) the number of warrant(s) per entitlement, converting such amount into the settlement currency if necessary, and in each case less any exercise expenses, so long as such amount is greater than zero. Cash-settled index warrants: The underlying asset of index warrants is an index published by an index compiler. Our cash-settled index call warrant gives its holders a right upon exercise of each board lot of warrants, to receive from us a cash amount equal to (1) the product of (i) the difference between the closing level of the index on the valuation date and the predetermined strike level, (ii) one board lot, and (iii) the index currency amount and divided by (2) the divisor, converting such amount into the settlement currency if necessary and less any exercise expenses. Our cash-settled index put warrant gives its holders a right upon exercise of each board lot of warrants, to receive from us a cash amount equal to (1) the product of (i) the difference between the predetermined strike level and the closing level of the index on valuation date, (ii) one board lot, and (iii) the index currency amount and divided by (2) the divisor, converting such amount into the settlement currency if necessary and less any exercise expenses. The closing level of the index on the valuation date may be determined by reference to the official settlement price of an exchange traded contract relating to the index or some other means; please see the terms and conditions of our warrants for further details. Cash-settled warrants relating to the units of a fund or trust: The underlying asset of warrants relating to the units of a fund or trust is units of the fund or trust (as the case may be). The units may be listed in Hong Kong or overseas. 3

6 Our cash-settled warrants relating to the units of a fund or trust provide for cash settlement only, which means that physical delivery of the underlying units will not be available as a method of settlement; instead, upon the exercise of each board lot of warrants, we will pay the warrantholder a cash amount equal to (1) the product of (i) the entitlement, (ii) the difference between the average price of the underlying unit and the exercise price (in the case of call warrants) or the exercise price and the average price of underlying unit (in the case of put warrants), and (iii) one board lot, and divided by (2) the number of warrant(s) per entitlement, converting such amount into the settlement currency if necessary, and in each case less any exercise expenses, so long as such amount is greater than zero. The master terms and conditions for each of the different types of warrants are included in Annex 1 to this base listing document. If we issue any warrants which are not cash-settled stock warrants, cash-settled index warrants or cash-settled warrants relating to the units of a fund or trust, we will include a summary of their features in the relevant supplemental listing document. The supplemental listing document will set out the following terms specific to our warrants to supplement the applicable set of master terms and conditions in Annex 1 to this base listing document: Board lot Shares of the company Company Fund/Trust Index Index compiler Exercise price Strike level Closing level Expiry date Minimum number at which our warrants trade Name of the underlying share (for our stock warrants only) Name of the company which issues the underlying shares (for our stock warrants only) Name of the underlying fund or trust (for our warrants relating to the units of a fund or trust only) Name of the underlying index (for our index warrants only) Name of the company that maintains the index and calculates and publishes the index levels (for our index warrants only) Predetermined exercise price of the underlying share/unit (for our warrants over stock and warrants relating to the units of a fund or trust only) Predetermined level of the underlying index (for our index warrants only) The level of the underlying index for the calculation of the cash settlement amount payable upon the exercise of our warrants (for our index warrants only) The date on which our warrants expire 4

7 Valuation date(s) Date(s) on which the average price or closing level (as the case may be) of the underlying asset is determined for the calculation of the cash settlement amount upon exercise of our warrants Entitlement Number of shares/units to which a specified number of warrants relate (for our warrants over stock and warrants relating to the units of a fund or trust only) Number of warrant(s) per entitlement Number of warrants to which one entitlement relates (for our stock warrants and warrants relating to the units of a fund or trust only) Index currency amount An amount denominated in the currency in which the constituent stocks of the index are traded, which is used in the calculation of the cash settlement amount payable upon the exercise of our warrants (for our index warrants only) Divisor European style Listing date A predetermined amount which is used in the calculation of the cash settlement amount payable upon the exercise of a board lot of our warrants (for our index warrants only) Our warrants are European style warrants. This means that they will be automatically exercised on the expiry date The date on which our warrants commence trading on the Stock Exchange CBBCs: CBBCs relating to a share: The underlying asset of CBBCs relating to a share is shares of a company. The shares may be listed in Hong Kong or overseas. CBBCs relating to a share are issued either as bull CBBCs or bear CBBCs: Bull CBBCs relating to a share Generally for a series of bull CBBCs relating to a share, when the spot price of the underlying share as reported by the relevant exchange is at any time at or below the predetermined call price during the observation period of the CBBCs, a mandatory call event occurs and the CBBCs will terminate. If no mandatory call event occurs during the observation period then, upon expiry, for each board lot of CBBCs, we will pay the holder an amount equal to (1) the product of (i) the entitlement, (ii) the difference between the closing price of the underlying share and the strike price, and (iii) one board lot, and divided by (2) the number of CBBC(s) per entitlement, and less any exercise expenses, so long as such amount is greater than zero. 5

8 If a mandatory call event has occurred, whether or not the holder of our CBBCs may receive a residual value depends on whether the CBBCs are Category N bull CBBCs or Category R bull CBBCs. For Category N bull CBBCs (where the call price is equal to the strike price), the holder of the CBBCs will not receive any cash payment from us upon the occurrence of the mandatory call event. For Category R bull CBBCs (where the call price is above the strike price), the holder of each board lot of CBBCs will receive from us a residual value, which will be an amount equal to (1) the product of (i) the entitlement, (ii) the difference between the lowest spot price to which the underlying share has traded on the exchange during the MCE valuation period (as defined in the relevant terms and conditions) and the strike price, and (iii) one board lot, and divided by (2) the number of CBBC(s) per entitlement. However, if this residual value less any exercise expenses is a negative number, then no amount is payable. Please note that during the life of a bull CBBC relating to a share, a given percentage change in the underlying share price may not result in the same percentage change (in the same direction) in the theoretical value of the CBBC. The percentage change in theoretical value of the CBBC may be greater or smaller, in the same or opposite direction. The theoretical value of the CBBC may be different from the prices available in the market. You should be aware that you may be subject to, among other risks, loss of a significant portion or the entirety of your investment in our CBBCs, which will be proportionately greater than the amount of loss you would sustain from investing the same amount directly in the underlying share, for a given change in the underlying share price. Please refer to the Risk Factors section of this base listing document and that of the relevant supplemental listing document. Bear CBBCs relating to a share Generally for a series of bear CBBCs relating to a share, when the spot price of the underlying share as reported by the relevant exchange is at any time at or above the predetermined call price during the observation period of the CBBCs, a mandatory call event occurs and the CBBCs will terminate. If no mandatory call event occurs during the observation period then, upon expiry, for each board lot of CBBCs, we will pay the holder an amount equal to (1) the product of (i) the entitlement, (ii) the difference between the strike price and the closing price of the underlying share, and (iii) one board lot, and divided by (2) the number of CBBC(s) per entitlement and less any exercise expenses, so long as such amount is greater than zero. 6

9 If a mandatory call event has occurred, whether or not the holder of our CBBCs may receive a residual value depends on whether the CBBCs are Category N bear CBBCs or Category R bear CBBCs. For Category N bear CBBCs (where the call price is equal to the strike price), the holder of the CBBCs will not receive any cash payment from us upon the occurrence of the mandatory call event. For Category R bear CBBCs (where the call price is below the strike price), the holder of each board lot of CBBCs will receive from us a residual value, which will be an amount equal to (1) the product of (i) the entitlement, (ii) the difference between the strike price and the highest spot price to which the underlying share has traded on the exchange during the MCE valuation period (as defined in the relevant terms and conditions), and (iii) one board lot, and divided by (2) the number of CBBC(s) per entitlement. However, if this residual value less any exercise expenses is a negative number, then no amount is payable. Please note that during the life of a bear CBBC relating to a share, a given percentage change in the underlying share price may not result in the same percentage change (in the opposite direction) in the theoretical value of the CBBC. The percentage change in theoretical value of the CBBC may be greater or smaller, in the same or opposite direction. The theoretical value of the CBBC may be different from the prices available in the market. You should be aware that you may be subject to, among other risks, loss of a significant portion or the entirety of your investment in our CBBCs, which will be proportionately greater than the amount of loss you would sustain from investing in the same amount directly in the underlying share, for a given change in the underlying share price. Please refer to the Risk Factors section of this base listing document and that of the relevant supplemental listing document. For both our bull CBBCs and bear CBBCs relating to a share, the closing price of an underlying share will be determined by reference to the market closing price on the valuation date. Please see the terms and conditions of our CBBCs for further details. CBBCs relating to an index: The underlying asset of CBBCs relating to an index is an index published by an index compiler. 7

10 CBBCs relating to an index are issued either as bull CBBCs or bear CBBCs: Bull CBBCs relating to an index Generally for a series of bull CBBCs relating to an index, when the level of the underlying index as published by the index compiler is at any time at or below the predetermined call level during the observation period of the CBBCs, a mandatory call event occurs and the CBBCs will terminate. If no mandatory call event occurs during the observation period then, upon the expiry of a CBBC, for each board lot of CBBCs, we will pay the holder an amount equal to (1) the product of (i) the difference between the closing level of the underlying index and the strike level, (ii) one board lot, and (iii) the index currency amount, and divided by (2) the divisor, and less any exercise expenses. If a mandatory call event has occurred, whether or not the holder of our CBBCs may receive a residual value depends on whether the CBBCs are Category N bull CBBCs or Category R bull CBBCs. For Category N bull CBBCs (where the call level is equal to the strike level), the holder of the CBBCs will not receive any cash payment from us upon the occurrence of the mandatory call event. For Category R bull CBBCs (where the call level is above the strike level), the holder of each board lot of CBBCs will receive from us a residual value, which will be an amount equal to (1) the product of (i) the difference between the lowest spot level of the underlying index as published by the index compiler during the MCE valuation period (as defined in the relevant terms and conditions) and the strike level, (ii) one board lot, and (iii) the index currency amount, and divided by (2) the divisor. However, if this residual value less any exercise expenses is a negative number, then no amount is payable. 8

11 Please note that during the life of a bull CBBC relating to an index, a given percentage change in the underlying index level may not result in the same percentage change (in the same direction) in the theoretical value of the CBBC. The percentage change in theoretical value of the CBBC may be greater or smaller, in the same or opposite direction. The theoretical value of the CBBC may be different from the prices available in the market. You should be aware that you may be subject to, among other risks, loss of a significant portion or the entirety of your investment in our CBBCs, which will be proportionately greater than the amount of loss you would sustain from investing the same amount directly in the index, for a given change in the index level. Please refer to the Risk Factors section of this base listing document and that of the relevant supplemental listing document. Bear CBBCs relating to an index Generally for a series of bear CBBCs relating to an index, when the level of the underlying index as published by the index compiler is at any time at or above the predetermined call level during the observation period of the CBBCs, a mandatory call event occurs and the CBBCs will terminate. If no mandatory call event occurs during the observation period then, upon the expiry of a CBBC, for each board lot of CBBCs, we will pay the holder an amount equal to (1) the product of (i) the difference between the strike level and the closing level of the underlying index, (ii) one board lot, and (iii) the index currency amount, and divided by (2) the divisor, and less any exercise expenses. If a mandatory call event has occurred, whether or not the holder of our CBBCs may receive a residual value depends on whether the CBBCs are Category N bear CBBCs or Category R bear CBBCs. For Category N bear CBBCs (where the call level is equal to the strike level), the holder of the CBBCs will not receive any cash payment from us upon the occurrence of the mandatory call event. For Category R bear CBBCs (where the call level is below the strike level), the holder of each board lot of CBBCs will receive from us a residual value, which will be an amount equal to (1) the product of (i) the difference between the strike level and the highest spot level of the underlying index as published by the index compiler during the MCE valuation period (as defined in the relevant terms and conditions), (ii) one board lot, and (iii) the index currency amount, and divided by (2) the divisor. However, if this residual value less any exercise expenses is a negative number, then no amount is payable. 9

12 Please note that during the life of a bear CBBC relating to an index, a given percentage change in the underlying index level may not result in the same percentage change (in the opposite direction) in the theoretical value of the CBBC. The percentage change in theoretical value of the CBBC may be greater or smaller, in the same or opposite direction. The theoretical value of the CBBC may be different from the prices available in the market. You should be aware that you may be subject to, among other risks, loss of a significant portion or the entirety of your investment in our CBBCs, which will be proportionately greater than the amount of loss you would sustain from investing the same amount directly in the index, for a given change in the index level. Please refer to the Risk Factors section of this base listing document and that of the relevant supplemental listing document. CBBCs relating to the units of a fund or trust: For both our bull CBBCs and bear CBBCs relating to an index, the closing level of the index will be determined by reference to the index level calculated for the purpose of final settlement of the applicable futures contract specified in the relevant supplemental listing document. Please see the terms and conditions of our CBBCs for further details. The underlying asset of CBBCs relating to the units of a fund or trust is units of the fund or trust (as the case may be). CBBCs relating to the units of a fund or trust are issued as either bull CBBCs or bear CBBCs: Bull CBBCs relating to the units of a fund or trust Generally for a series of bull CBBCs relating to the units of a fund or trust, when the spot price of the underlying unit as reported by the relevant exchange is at any time at or below the predetermined call price during the observation period of the CBBCs, a mandatory call event occurs and the CBBCs will terminate. If no mandatory call event occurs during the observation period then, upon expiry, for each board lot of CBBCs, we will pay the holder an amount equal to (1) the product of (i) the entitlement, (ii) the difference between the closing price of the underlying unit and the strike price, and (iii) one board lot, and divided by (2) the number of CBBC(s) per entitlement, and less any exercise expenses, so long as such amount is greater than zero. If a mandatory call event has occurred, whether or not the holder of our CBBCs may receive a residual value depends on whether the CBBCs are Category N bull CBBCs or Category R bull CBBCs. For Category N bull CBBCs (where the call price is equal to the strike price), the holder of the CBBCs will not receive any cash payment from us upon the occurrence of the mandatory call event. 10

13 For Category R bull CBBCs (where the call price is above the strike price), the holder of each board lot of CBBCs will receive from us a residual value, which will be an amount equal to (1) the product of (i) the entitlement, (ii) the difference between the lowest spot price to which the underlying unit has traded on the exchange during the MCE valuation period (as defined in the relevant terms and conditions) and the strike price, and (iii) one board lot, and divided by (2) the number of CBBC(s) per entitlement. However, if this residual value less any exercise expenses is a negative number, then no amount is payable. Please note that during the life of a bull CBBC relating to the units of a fund or trust, a given percentage change in the underlying unit price may not result in the same percentage change (in the same direction) in the theoretical value of the CBBC. The percentage change in theoretical value of the CBBC may be greater or smaller, in the same or opposite direction. The theoretical value of the CBBC may be different from the prices available in the market. You should be aware that you may be subject to, among other risks, loss of a significant portion or the entirety of your investment in our CBBCs, which will be proportionately greater than the amount of loss you would sustain from investing in the same amount directly in the underlying unit, for a given change in the underlying unit price. Please refer to the Risk Factors section of this base listing document and the relevant supplemental listing document. Bear CBBCs relating to the units of a fund or trust Generally for a series of bear CBBCs relating to the units of a fund or trust, when the spot price of the underlying unit as reported by the relevant exchange is at any time at or above the predetermined call price during the observation period of the CBBCs, a mandatory call event occurs and the CBBCs will terminate. If no mandatory call event occurs during the observation period then, upon expiry, for each board lot of CBBCs, we will pay the holder an amount equal to (1) the product of (i) the entitlement, (ii) the difference between the strike price and the closing price of the underlying unit, and (iii) one board lot, and divided by (2) the number of CBBC(s) per entitlement, and less any exercise expenses, so long as such amount is greater than zero. If a mandatory call event has occurred, whether or not the holder of our CBBCs may receive a residual value depends on whether the CBBCs are Category N bear CBBCs or Category R bear CBBCs. For Category N bear CBBCs (where the call price is equal to the strike price), the holder of the CBBCs will not receive any cash payment from us upon the occurrence of the mandatory call event. 11

14 For Category R bear CBBCs (where the call price is below the strike price), the holder of each board lot of CBBCs will receive from us a residual value, which will be an amount equal to (1) the product of (i) the entitlement, (ii) the difference between the strike price and the highest spot price to which the underlying unit has traded on the exchange during the MCE valuation period (as defined in the relevant terms and conditions), and (iii) one board lot, and divided by (2) the number of CBBC(s) per entitlement. However, if this residual value less any exercise expenses is a negative number, then no amount is payable. Please note that during the life of a bear CBBC relating to the units of a fund or trust, a given percentage change in the underlying unit price may not result in the same percentage change (in the opposite direction) in the theoretical value of the CBBC. The percentage change in theoretical value of the CBBC may be greater or smaller, in the same or opposite direction. The theoretical value of the CBBC may be different from the prices available in the market. You should be aware that you may be subject to, among other risks, loss of a significant portion or the entirety of your investment in our CBBCs, which will be proportionately greater than the amount of loss you would sustain from investing the same amount directly in the underlying unit, for a given change in the underlying unit price. Please refer to the Risk Factors section of this base listing document and the relevant supplemental listing document. For both our bull CBBCs and bear CBBCs relating to the units of a fund or trust, the closing price of an underlying unit will be determined by reference to the market closing price on the valuation date. Please see the terms and conditions of our CBBCs for further details. The supplemental listing document will set out the following terms specific to our CBBCs to supplement the applicable set of master terms and conditions in Annex 2 to this base listing document: Category Board lot Shares of the company Company Fund/Trust Index The category of our CBBCs: Category N or Category R, bull or bear Minimum number at which our CBBCs trade Name of the underlying share (for our CBBCs relating to a share only) Name of the company which issues the underlying shares (for our CBBCs relating to a share only) Name of the underlying fund or trust (for our CBBCs relating to the units of a fund or trust only) Name of the underlying index (for our CBBCs relating to an index only) 12

15 Index compiler Call price Strike price Call level Strike level Divisor Expiry date Valuation date Entitlement Number of CBBC(s) per Entitlement Name of the company that maintains the index and calculates and publishes the index levels (for our CBBCs relating to an index only) Predetermined call price of the underlying share/unit (for our CBBCs relating to a share and our CBBCs relating to the units of a fund or trust only) Predetermined strike price of the underlying share/unit (for our CBBCs relating to a share and our CBBCs relating to the units of a fund or trust only) Predetermined call level of the underlying index (for our CBBCs relating to an index only) Predetermined strike level of the underlying index (for our CBBCs relating to an index only) A predetermined amount which is used in the calculation of the cash settlement amount (if any) payable upon the occurrence of a mandatory call event or automatic exercise on expiry (for our CBBCs relating to an index only) The date on which our CBBCs expire Date on which the closing price or the closing level of the underlying asset is determined for calculation of the cash settlement amount upon automatic exercise on expiry Number of shares/units to which a specified number of CBBCs relates (for our CBBCs relating to a share and our CBBCs relating to the units of a fund or trust only) Number of CBBCs to which one entitlement relates (for our CBBCs relating to a share and our CBBCs relating to the units of a fund or trust only) Index currency amount An amount denominated in the currency in which the constituent stocks of the index are traded, which is used in the calculation of the cash settlement amount (if any) payable upon the occurrence of a mandatory call event or automatic exercise on expiry (for our CBBCs relating to an index only) Observation commencement date Observation period Listing date Trading day The date on which the observation period commences The period from and including the observation commencement date to and including the trading day immediately preceding the expiry date The date on which our CBBCs commence trading on the Stock Exchange Any day on which the Stock Exchange is scheduled to open for trading for its regular trading sessions 13

16 MORE INFORMATION ABOUT OUR STRUCTURED PRODUCTS AND OUR LISTING DOCUMENTS WHAT ARE THE LISTING DOCUMENTS? The listing documents consist of this base listing document (including its addendum, if any) and for each series of our structured products, its supplemental listing document. If the information in this base listing document needs to be updated, we will either include the updated information in the relevant supplemental listing document or publish an addendum to this base listing document. None of the listing documents constitutes an offer, advertisement, recommendation or invitation to the public to subscribe for or to acquire any structured products. IS THERE ANY GUARANTEE OR COLLATERAL FOR OUR STRUCTURED PRODUCTS? No. Our obligations under our structured products are neither guaranteed by any third party, nor collateralised with any of our assets or other collateral. When you purchase our structured products, you are relying on our creditworthiness only, and of no other person. If we become insolvent or default on our obligations under the structured products, you can only claim as an unsecured creditor of the Issuer. In such event, you may not be able to recover all or even part of the amount due under our structured products (if any). WHO IS RESPONSIBLE FOR THE LISTING DOCUMENTS? We accept full responsibility for the accuracy of the information contained in the listing documents. We have included references to one or more websites in this base listing document and we may include references to one or more websites (including any third party websites) in the relevant supplemental listing document for each series of structured products to guide you to sources of freely available information. The information on these websites does not form part of our listing document. We are not responsible for information on these websites. Such information has not been prepared for the purposes of our structured products. Our base listing document is accurate at the date stated on the cover. You must not assume, however, that information in this base listing document is accurate at any time after the date of this base listing document. Neither the sponsor nor the liquidity provider is responsible in any way for ensuring the accuracy of our listing documents. WHAT ARE OUR CREDIT RATINGS? Our long-term credit ratings (as of 17 April 2014) are as set out on page 1 of this base listing document. Rating agencies usually receive a fee from the companies that they rate. When evaluating our creditworthiness, you should not solely rely on our credit ratings because: a credit rating is not a recommendation to buy, sell or hold the structured products; ratings of companies may involve difficult-to-quantify factors such as market competition, the success or failure of new products and markets and managerial competence; a high credit rating is not necessarily indicative of low risk. Our credit ratings as of 17 April 2014 are for reference only. Any downgrading of our ratings could result in a reduction in the value of the structured products; a credit rating is not an indication of the liquidity or volatility of the structured products; and a credit rating may be downgraded if the credit quality of the Issuer declines. The structured products are not rated. 14

17 The Issuer s credit ratings are subject to change or withdrawal at any time within each rating agency s sole discretion. You should conduct your own research using publicly available sources to obtain the latest information with respect to the Issuer s ratings from time to time. IS THE ISSUER REGULATED BY THE HONG KONG MONETARY AUTHORITY REFERRED TO IN RULE 15A.13(2) OR THE SECURITIES AND FUTURES COMMISSION ( SFC ) REFERRED TO IN RULE 15A.13(3)? We are regulated by the Hong Kong Monetary Authority as a licensed bank. We are also regulated by the United Kingdom Financial Conduct Authority and the Prudential Regulation Authority. WHERE CAN I FIND MORE INFORMATION ABOUT THE ISSUER AND THE STRUCTURED PRODUCTS? Information on us and our structured products is described in the listing documents. Please read the listing documents carefully before you decide whether to buy our structured products. Additional and more up-to-date information about us may be available on the website You are cautioned that this information (if available) will be of a general nature and cannot be relied upon as being accurate and/or correct and will not have been prepared exclusively for the purposes of our structured products. We have not authorised anyone to give you any information about our structured products other than the information in the listing documents. WHEN WERE THE STRUCTURED PRODUCTS AUTHORISED? The issue of our structured products was authorised on 25 March WHERE CAN I READ COPIES OF THE ISSUER S DOCUMENTATION? You can read copies of the documents set out below by going to the offices of Standard Chartered Bank (Hong Kong) Limited at 15th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. These offices are open only during normal business hours and not on Saturdays, Sundays or public holidays in Hong Kong. These are the documents, copies of which may be inspected upon request while any of our structured products are outstanding: Royal Charter, Bye-Laws and Rules of SCB; our 2013 annual report which contains the financial statements of SCB and its subsidiaries ( SCB Group ) for the year ended 31 December 2013; as they become available, the unaudited interim consolidated accounts of SCB Group; the letter from our auditors, KPMG Audit Plc, consenting to the reproduction of their reports in this base listing document; the instrument executed by us by way of deed poll on 25 June 2010 pertaining to the issue of our structured products (the Instrument ); and this base listing document (and its addendum, if any) and the relevant supplemental listing document for a series of our structured products as long as the structured products are listed on the Stock Exchange (together with a Chinese translation of each of these documents). A reasonable fee will be charged if you want to take photocopies of any of the documents while they are on display. DEALING IN THE STRUCTURED PRODUCTS Settlement of transactions between members of the Stock Exchange on any business day must take place on or before the second CCASS 15

18 settlement day (as defined in the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time) thereafter. Securities executed on the Stock Exchange would normally be settled under the continuous net settlement system in CCASS. Dealings in the structured products will take place in relevant board lots in the relevant settlement currency. For further details on transfers of the structured products and their exercise or settlement, please see the terms and conditions of the relevant series of the structured products. DO I HAVE TO PAY STAMP DUTY OR OTHER LEVIES ON THE STRUCTURED PRODUCTS? There is no Hong Kong stamp duty on the issue or transfer of our cash-settled structured products. The levy for the investor compensation fund is currently suspended. However, the SFC charges a transaction levy at the rate of per cent. on the value of the transaction of the structured products and this amount is payable by each of the buyer and seller. Additionally, the Stock Exchange charges a trading fee on every purchase and sale of listed securities calculated at a rate of per cent. of the amount of the transaction and is payable by each of the buyer and seller. We will make all necessary arrangements to enable our structured products to be admitted for deposit, clearing and settlement in CCASS. We will not issue any definitive certificates for our structured products. Our structured products will be deposited within CCASS. If you are a CCASS investor participant, you may hold your structured products in your account with CCASS. If you do not have a CCASS account, your broker or agent (as a CCASS participant) will arrange to hold your structured products for you in an account at CCASS. We will make all payments on our structured products to CCASS: you will have to check your CCASS account or rely on your broker to ensure that payments on your structured products are credited to your account with your broker. Once we have made the relevant payments in this way to CCASS, we will have no further obligations for that payment, even if CCASS or your broker fails to transmit to you your share of the payment or if it was transmitted late. Any notices we give in relation to our structured products will be given in the same way: you will have to rely on CCASS and/or your broker to ensure that those notices reach you. You should be aware that you may be required to pay stamp taxes or other documentary charges in accordance with the laws and practices of the country where the structured products are transferred. If you are in any doubt as to your tax position, you should consult your own independent tax advisers. You should also be aware that tax regulations and their application by the relevant taxation authorities change from time to time. HOW DO I HOLD MY STRUCTURED PRODUCTS? Our structured products will be issued in global registered form, represented by a global certificate registered in the name of HKSCC Nominees Limited (or its successors) or another nominee of Hong Kong Securities Clearing Company Limited. 16

19 RISK FACTORS You should carefully consider the following information together with the other information contained in the listing documents (including the relevant supplemental listing document) before purchasing any of our structured products. This section highlights the Issuer s considered assessment of the risks of dealing in the structured products. Their inclusion in this base listing document does not mean these are the only significant or relevant risks of dealing in our structured products. 1 Non-collateralised structured products; you must rely on our creditworthiness; our obligations are not deposit liability or debt obligations Our structured products are not secured on any of our assets or any collateral. Our structured products represent our general contractual obligations and will rank equally with our other general unsecured obligations. The number of structured products outstanding at any given time may be substantial. When purchasing our structured products, you will be relying upon our creditworthiness alone, and not that of anyone else. There is no assurance of protection against a default by us in respect of our obligations under the structured products. If we become insolvent or default on our obligations under the structured products, you can only claim as our unsecured creditor regardless of the performance of the underlying asset and you may not be able to recover all or even part of the amount due under the structured products (if any). We do not intend to create upon ourselves a deposit liability or a debt obligation by issue of any structured products. 2 Our structured products are not rated The Issuer s credit ratings are subject to change or withdrawal at any time within each rating agency s sole discretion. You should conduct your own research using publicly available sources to obtain the latest information with respect to the Issuer s ratings from time to time. 3 There are risks associated with investing in our structured products Our structured products are structured financial instruments, their value may fall as rapidly as they may rise and you may sustain a total loss in your investment. Your investment in our structured products involves risks. Before investing in any of our structured products, you should consider whether our structured products are suitable for you in light of your own financial circumstances and investment objectives. Not all of these risks are described in this base listing document or a supplemental listing document. You should consider taking independent professional advice prior to making an investment in our structured products. 4 Structured products are complex and volatile instruments Your investment in our structured products will be worthless if you are holding our structured products when they expire out-of-the-money meaning that the closing price or level of the underlying asset, determined in accordance with the terms and conditions of our structured products, is greater (for our put warrants or bear CBBCs) or less (for our call warrants or bull CBBCs) than the exercise/strike price or strike level (as the case may be) of our structured products. Our structured products are complex instruments and their values at any time prior to expiry are governed by a number of factors, including but not limited to the time left until expiry, the price or level of the underlying asset compared with the exercise/strike price/level or call price/level (in the case of our CBBCs) of our structured products, the value and volatility of price or level of the underlying asset, market interest rate movements, our financial condition and the market s view of our credit quality. The values of our structured products may rise or fall rapidly over a short time due to changes in one or more factors. The interplay of these different factors also means that the 17

20 effect on the value of our structured products from the change in one factor may offset or accentuate the effect from the change in another factor. The value or level of the underlying assets (and some of the other relevant factors) can also be unpredictable: it may change suddenly and in large magnitude or not change at all. You may risk losing your entire investment if the price or level of the underlying assets do not move in your anticipated direction. You should also note that, assuming all other factors are held constant, the value of structured products will decline over time. The cash settlement amount of our structured products if calculated at any time prior to expiry may typically be less than the market price of such structured products at that time. The difference will reflect, among other things, a time value for the structured products which depends on a number of interrelated factors including those specified above. 5 Your ability to realise your investment in our structured products is dependent on the trading market for our structured products As our structured products are not exercisable prior to the expiry date, the only way you may be able to realise the value of your investment in our structured products is to dispose of them in either the on-exchange market or over-the-counter market. If you dispose of your investment in our structured products before expiry in this way, the amount you will receive will depend on the price you are able to obtain from the market for our structured products. That price may depend on the quantity of our structured products you are trying to sell. The market price of our structured products may not be equal to the value of our structured products, and changes in the price of our structured products may not correspond (in direction and/or magnitude) with changes in the value of our structured products. While we have appointed, or will appoint, a liquidity provider for the purposes of making a market for each series of our structured products, there may be circumstances outside our control where the appointed liquidity provider s ability to make a market in some or all series of our structured products is limited, restricted and/or, without limitation, frustrated. The more limited the secondary market, the more difficult it may be for you to realise the value of our structured products prior to expiry. You should refer to the section regarding liquidity provider in the relevant supplemental listing document for further details. The prices provided by our liquidity provider are influenced by, among other things, the supply and demand of our structured products for a particular series in the market, and may not correspond with the values of such structured products or changes in such values. You should note that the prices available in the market for our structured products may also come from other participants in the market, although we cannot predict if and to what extent a secondary market may develop for our structured products or whether that market will be liquid or illiquid. The fact that a particular series of structured products is listed does not necessarily lead to greater liquidity. In addition, no assurance can be given that the listing of any particular series of our structured products will be maintained. If our structured products of a particular series cease to be listed, they will not be transacted through the Stock Exchange, and they may even be terminated early. Off-exchange transactions may involve greater risks than on-exchange transactions. You may be unable to find any buyer for your holdings of our structured products on the Stock Exchange if the value of the structured products falls below HK$0.01. The liquidity of any series of our structured products may also be affected by restrictions on offers and sales of our structured products in some jurisdictions including the restrictions described in Annex 3 Purchase and Sale to this base listing document. If trading in the underlying asset is suspended for whatever reason on the market on which they are listed or dealt in (including the Stock Exchange), trading in our structured products will also be suspended for a similar period. The value of our structured products will decrease over time as the length of the period remaining to expiration becomes shorter. You should note that in the 18

21 case of a prolonged suspension period, the market price of our structured products will be subject to a significant impact of time decay of such prolonged suspension period and may fluctuate significantly upon resumption of trading after the suspension period of our structured products. This may adversely affect your investment in our structured products. In view of the limited trading market of our structured products, you may need to hold our structured products until expiry. 6 You have no rights in the underlying assets and the market price for our structured products may fluctuate differently from that of the underlying assets Our structured products are financial instruments issued by us and are separate from the underlying assets. You have no rights under our structured products against (i) any company, trust or fund which issues or comprises the underlying assets of the relevant series of our structured products or (ii) the trustee or the manager of any underlying asset that is a trust or a fund or (iii) the compiler of any underlying asset that is an index. In addition, buying our structured products is not the same as buying the underlying assets or having a direct investment in the underlying assets or shares comprising any underlying asset that is an index. You will not be entitled to have voting rights, rights to receive dividends or distributions or any other rights under the underlying asset or shares comprising any underlying asset that is an index. As mentioned, there are many factors influencing the value and/or market price of our structured products, which are leveraged instruments. For example, increases in the price or level of the underlying assets may not lead to an increase in the value and/or market price of our call warrants or bull CBBCs by a proportionate amount or even any increase at all; however, a decrease in the price or level of the underlying assets may lead to a greater than proportionate decrease in the value and/or market price of our call warrants or bull CBBCs. There is no assurance that a change in value and/or market price of our structured products will correspond in direction and/or magnitude with the change in price or level of the underlying assets. You should recognise the complexities of utilising our structured products to hedge against the market risk associated with investing in an underlying asset or shares comprising any underlying asset that is an index. Unless otherwise specified, the Issuer, the trustee, the manager or the sponsor of the underlying assets will have no involvement in the offer and sale of our structured products and no obligation to you as investors of our structured products. The decisions made by them on corporate actions, such as a merger or sale of assets, or adjustment of the method for calculation of an index may also have adverse impact on the value and/or market price of our structured products. 7 There could be conflicts of interest arising out of our other activities which may affect our structured products We and any of our subsidiaries and affiliates may engage in transactions (whether for our or their own accounts, including hedging, or trading for accounts under management or otherwise) involving, as well as provide investment banking and other services to, any company or any trustee or manager of a trust or a fund underlying our structured products or their securities and may enter into transactions with the substantial shareholders of the underlying company. Those transactions may have a positive or negative impact on the price or level of the underlying asset and in turn the value and/or market price of our structured products. For example, in the case of CBBCs, these transactions may result in the price or level of the underlying asset moving closer to, or even reaching or going beyond the call price or call level of our CBBCs thus causing a mandatory call event. These transactions may also influence the price or level of the underlying asset after the occurrence of the mandatory call event and adversely impact on the residual value payable (if any, for a category R CBBC). The mandatory call event may be triggered by a single trade in the underlying asset, regardless of the size of the trade. In addition, the unwinding of hedges at any time on or after the occurrence of a mandatory call event may 19

22 affect the price or level of the underlying asset and consequently affect the cash settlement amount of our CBBCs. We and any of our subsidiaries and affiliates may have officers who serve as directors of the company underlying our structured products. Our own trading activities (which include hedging of our structured products) in the underlying securities or related structured products may affect the value and/or market price of the structured products. We may issue other competing financial products which may affect the value and/or market price of our structured products. You should also note that potential conflicts of interest may arise from the different roles played by us and any of our subsidiaries and affiliates in connection with our structured products and the economic interests in each role may be adverse to your interests in our structured products. However, we maintain regulatorily required information barriers between our different business areas as well as regulatorily required policies and procedures designed to minimise and manage such potential and actual conflicts of interest to comply with applicable laws and regulations, and to ensure our transactions and/or dealings in respect of our structured products will be transacted at arm s length. 8 We may early terminate our structured products due to illegality or impracticability If we determine in good faith and in a commercially reasonable manner that, for reasons beyond our control, it has become or it will become illegal or impracticable: (i) for us to perform our obligations under any structured products in whole or in part; or (ii) for us or any of our affiliates to maintain our or their hedging arrangements with respect to the structured products, we may decide to terminate that series of structured products early. If this happens, we will, if and to the extent permitted by the applicable law or regulation, pay to each holder of those structured products a cash amount determined by us in good faith and in a commercially reasonable manner to be the fair market value of the structured products immediately prior to such termination (ignoring such illegality or impracticability) less our cost of unwinding any related hedging arrangement as determined by us in our sole and absolute discretion. Such amount may be substantially less than your initial investment and may be zero. 9 Structured products relating to an index involve valuation risks You should note that, in the case of structured products relating to an index, an investment involves valuation risks in relation to the index. The level of the index may vary over time and may increase or decrease due to various factors including changes in the formula for or the method of calculating the index. In addition, a level for the index may be published by the index compiler at a time when one or more securities comprising the index are not trading. If this occurs on the valuation date and there is no market disruption event called under the terms of the relevant structured products, then the value of such securities used in calculating the closing level of the index will not be their up-to-date market price. Certain (but not all) events relating to the index underlying our structured products require or, as the case may be, permit us to make certain adjustments or amendments to the conditions (including, but not limited to, determining the level of the index). However, we are not required to make an adjustment for every event that can affect the index. If an event occurs that does not require us to adjust the terms and conditions, the market price of our structured products and the return upon mandatory call event or expiry of our structured products may be affected. 10 Risks associated with our structured products relating to the units of a fund or trust For our structured products relating to the units of a fund or trust, neither we nor any of our affiliates have the ability to control or predict the actions of the trustee or the manager of the fund or trust. Neither the trustee nor the manager of the fund or trust (i) is involved in the offer of any structured products in any way, or (ii) has any obligation to consider the interest of the holders of any structured products in taking any corporate actions that might affect the value of any structured products. We have no role in the fund or trust. The trustee or the manager of the fund or trust is responsible for making investment and other trading decisions with respect to the management of 20

23 the fund or trust consistent with its investment objectives and in compliance with the investment restrictions as set out in the constitutive documents of the fund or trust. The manner in which the fund or trust is managed and the timing of actions may have a significant impact on the performance of the units. Hence, the price which is used to calculate the performance of the units is also subject to these risks. You should note that our structured products relating to the units of a fund or trust reference the units of the fund or trust and the cash settlement amount payable upon exercise will be calculated using the official closing prices of the units on the underlying exchange on the valuation dates. If the fund or trust is designed to track the performance of an index, you should note that our structured products do not reference the index tracked by the fund or trust. Changes in the price of the units on the underlying exchange may not correspond with changes in the level of such index, and such price at any given time may differ from the net asset value per unit of the fund or trust. There is also a risk that the investment objectives and/or investment restrictions as set out in the constitutive documents of the fund or trust are materially changed or are not complied with or the method of calculating the net asset value of the fund or trust is materially changed. In addition, the applicable laws and regulations governing the fund or trust may also restrict the operations of the fund or trust and restrict its ability to achieve the investment objectives. For our structured products relating to the units of an exchange traded fund ( ETF ), you should note that (i) an ETF is exposed to the economic, political, currency, legal and other risks of a specific sector or market related to the underlying asset pool or index or market that the ETF is designed to track; (ii) there may be disparity between the performance of the ETF and the performance of the underlying asset pool or index or market that the ETF is designed to track as a result of, for example, failure of the tracking strategy, currency differences, fees and expenses; and (iii) where the underlying asset pool or index or market that the ETF tracks is subject to restricted access, the efficiency in the unit creation or redemption to keep the price of the ETF in line with its net asset value may be disrupted, causing the ETF to trade at a higher premium or discount to its net asset value. Hence, the market price of the structured products will also be indirectly subject to these risks. Additionally, where the underlying asset of structured products comprises the units of an ETF adopting a synthetic replication investment strategy to achieve its investment objectives by investing in financial derivative instruments linked to the performance of an underlying asset pool or index that the ETF is designed to track ( Synthetic ETF ), you should note that (i) investments in financial derivative instruments will expose the Synthetic ETF to the credit, potential contagion and concentration risks of the counterparties who issued such financial derivative instruments. As such counterparties are predominantly international financial institutions, the failure of one such counterparty may have a negative effect on the other counterparties of the Synthetic ETF. Even if the Synthetic ETF has collateral to reduce the counterparty risk, there may still be a risk that the market value of the collateral has fallen substantially when the Synthetic ETF seeks to realise the collateral; and (ii) the Synthetic ETF may be exposed to higher liquidity risk if the Synthetic ETF invests in financial derivative instruments which do not have an active secondary market. Accordingly, by investing in the structured products you are also exposed to the credit risk of the counterparties who issued the derivatives in addition to the risks associated with the underlying index the performance of which the Synthetic ETF is designed to replicate. You should note that the above risks may have a significant impact on the performance of the relevant ETF or Synthetic ETF and hence the market price of our structured products linked to such ETF or Synthetic ETF. 21

24 11 Liquidation of underlying company or termination of underlying trust or fund In the event of liquidation, dissolution, winding up or termination of the company, trust or fund that issues the underlying shares or units or the appointment of a receiver or administrator or analogous person to the company, trust or fund, the relevant structured products shall lapse. 12 Time lag between the time of exercise or the occurrence of a mandatory call event (in the case of CBBCs) and the time of determination of the cash settlement amount may affect the cash settlement amount There may be a time lag between the time or date when our structured products are automatically exercised; or (in the case of our CBBCs only) when a mandatory call event occurs and the time of determination of the cash settlement amount payable to the investors. Such delay could be significantly longer in the case of a market disruption event, delisting of the company that issues the underlying assets or shares comprising any underlying asset that is an index, termination of the trust or fund that issues the underlying unit or other adjustment events. The cash settlement amount may change significantly during any such period and may result in such cash settlement amount being zero. 13 We may adjust the terms and conditions of our structured products upon the occurrence of certain corporate events or extraordinary events affecting the underlying assets We may determine that certain corporate events or extraordinary events affecting the underlying assets have occurred and may make corresponding adjustments to the terms and conditions of our structured products, including adjustments to the value or level of the underlying assets or changing the composition of the underlying assets. Such events and/or adjustments (if any) may have adverse impact on the value and/or market price of our structured products. We may also in our sole discretion adjust the entitlement of our structured products for dilution events such as stock splits and stock dividends. However, we have no obligation to make an adjustment for every event that can affect the underlying asset. The value and/or market price of our structured products may be adversely affected by such events in the absence of an adjustment by us. If adjustments were made, we do not assure that such adjustments can negate any adverse impact of such events on the value and/or market price of our structured products. 14 We may modify the terms and conditions of our structured products We may, without your consent, modify the terms and conditions applicable to our structured products if such modification is: (i) not materially prejudicial to your interests; (ii) of a formal, minor or technical nature; (iii) made to correct a manifest error; or (iv) necessary in order to comply with mandatory provision(s) of the laws or regulations of Hong Kong. 15 Our determination of the occurrence of a market or settlement disruption event may affect the value and/or market price of our structured products We may determine that a market or settlement disruption event has occurred. Such determination may affect the value and/or market price of our structured products, and may delay settlement in respect of our structured products. If we determine that a market disruption event exists, the valuation of the underlying assets for the purpose of calculating the cash settlement amount of our structured products may be postponed. Under certain circumstances, we may determine the good faith estimate of the value or level of the underlying assets that would have prevailed on the relevant valuation date or postponed valuation date (as the case may be) but for such market disruption event. 22

25 16 The implied volatility of our structured products may not reflect the actual volatility of the underlying asset The market price of our structured products is determined among other factors by the supply and demand of the structured products. This price implies a level of volatility in the underlying asset in the sense that such level of volatility would give a theoretical value for the structured product which is equal to that price; but such level of volatility may not be equal to the actual level of volatility of the underlying asset in the past or future. The implied volatility of our structured products may change without notice throughout the life of our structured products. 17 Investment in our structured products may involve exchange rate risks and interest rate risks An investment in our structured products may involve exchange rate risks. For example, the underlying asset may be denominated in a currency other than that of our structured products, our structured products may be denominated in a currency other than the currency of your home jurisdiction and our structured products may settle in a currency other than the currency in which you wish to receive funds. Changes in the exchange rate(s) between the currency of the underlying asset, the currency in which our structured products settle and/or the currency of your home jurisdiction may adversely affect the return of your investment in our structured products. We cannot assure that exchange rates on the issue date of our structured products will be representative of the future exchange rates used in computing the value of our structured products. Fluctuations in exchange rates may therefore affect the value of our structured products. An investment in our structured products may also involve interest rate risk as the intrinsic value of a structured product may be sensitive to fluctuations in interest rates. Fluctuations in the short term or long term interest rates of the currency in which our structured products are settled or the currency in which the underlying asset is denominated may affect the value and/or market price of our structured products. 18 Please consult your tax advisers if you are in any doubt about your tax position You may be required to pay stamp taxes or other documentary charges in accordance with the laws and practices of the country where our structured products are transferred and such laws and practices may change from time to time. If you are in any doubt about your tax position, you should consult your own independent tax advisers. 19 Our structured products are issued in global registered form; you have to rely on your brokers to evidence title to your investment and to receive notices and the cash settlement amount Our structured products are issued in global registered form and held on your behalf within a clearing system. This means that evidence of title to your interests, as well as the efficiency of ultimate delivery of the cash settlement amount, will be governed by the CCASS Rules. Our structured products in global registered form will be registered in the name of HKSCC Nominees Limited (or its successors) or another nominee of Hong Kong Securities Clearing Company Limited, which shall be treated by us as the holder of our structured products for all purposes. This means that you will not receive definitive certificates and the register will record at all times that our structured products are being held by HKSCC Nominees Limited (or its successors) or another nominee of Hong Kong Securities Clearing Company Limited. You will have to rely solely upon your brokers and the statements received from your brokers to evidence title to your investments. You will also have to rely on your brokers to effectively inform you of any 23

26 notices, announcements and/or meetings issued or called by us (upon receipt by those brokers as CCASS participants of the same from CCASS and ultimately from us). The Stock Exchange s Listing Rules also provide that our obligations to deliver notices, announcements and/or meetings will be complied with by a posting on the Stock Exchange website. Our obligations to deliver any cash settlement amount to you will be duly performed by the delivery of any such amount to HKSCC Nominees Limited (or its successors) or another nominee of Hong Kong Securities Clearing Company Limited as the holder. You will therefore have to check your CCASS account (if any) or rely on your brokers for the ultimate delivery of any cash settlement amount to you as the investor. 20 We do not give you any advice or credit analysis We are not responsible for the lawfulness of your acquisition of our structured products. We are not giving you any advice or credit analysis of the underlying assets. You shall be deemed to have made a representation to such effect for each purchase of any series of our structured products. 21 We are not the holding company of the Group to which we belong We are not the ultimate holding company of the Group to which we belong and with which our name is identified. The ultimate holding company of the Group to which we belong is Standard Chartered PLC ( SCPLC ). 22 U.S. foreign accounts reporting We and other financial institutions through which payments on the structured products are made may be required to withhold U.S. federal tax at a rate of 30 per cent. on all or a portion of payments made after 1 July 2014 in respect of our structured products. Legislation known as the United States Hiring Incentives to Restore Employment Act (the HIRE Act ), which included provisions referred to as the Foreign Account Tax Compliance Act ( FATCA ), was passed in the United States on 18 March Under the HIRE Act and FATCA, we may be required to withhold moneys on account of U.S. federal tax on all, or a portion of: (a) (b) any payments made in respect of our structured products that are linked to the value of, or dividends on, stock issued by an entity that is treated as a U.S. corporation (or by any other entity the dividends of which would be U.S. source) for U.S. federal income tax purposes (such payments, U.S. Source Payments ); or any payments (regardless of whether such payments have any connection to a U.S. Source Payment) made after 31 December 2016 in respect of our structured products. HIRE Act and FATCA withholding tax can affect both coupon or periodic payments and gross proceeds (including principal payments). The relevant rules are still being developed and the future application of FATCA to us and the holders of structured products is uncertain. It is our intention, subject to further clarification and analysis of the legal requirements associated with entering into relevant legal agreements with the U.S. government, to comply with FATCA and to conclude certain FATCA agreements with the U.S. Internal Revenue Service ( IRS Agreements ) for relevant entities in the Group. Additionally, U.S. Treasury regulations issued under FATCA provide an alternative to FATCA compliance for entities that reside in jurisdictions that have entered into intergovernmental agreements ( IGAs ) with the United States. Although the relevant rules have not yet been fully developed, the United States and the United Kingdom have signed an IGA and it is our intention to comply with the relevant reporting requirements imposed therein. As a result of FATCA (including the application of the IRS 24

27 Agreements and IGAs), holders of structured products may be required to provide certain certification and information or be subject to FATCA withholding on all or a portion of the payments made to them in respect of our structured products. If withholding is required under FATCA, we would be entitled to withhold taxes without being required to pay any additional amounts with respect to amounts so withheld. FATCA is particularly complex and its application is uncertain at this time. Each holder of structured products should consult its own tax advisor as to the application of FATCA to an investment in the structured products. 23 Potential U.S. withholding tax For U.S. federal income tax purposes, a dividend equivalent payment is generally treated as a dividend from sources within the U.S. and such payments generally would be subject to a 30 per cent. (or a lower rate under an applicable treaty) U.S. withholding tax if paid to a non-u.s. holder. Under proposed U.S. Treasury Department regulations, payments (including deemed payments) that are contingent upon or determined by reference to actual or estimated U.S. source dividends with respect to certain equity-linked instruments, whether explicitly stated or implicitly taken into account in computing one or more of the terms of such instrument, may be treated as dividend equivalents. Based on the proposed regulations and recent guidance by the U.S. Internal Revenue Service, the regulations (when enacted) will impose a withholding tax on payments made on our structured products on or after January 1, 2016 that are treated as dividend equivalents. However, the U.S. Treasury Department and Internal Revenue Service have announced that they intend to limit this withholding to equity-linked instruments issued on or after the date that is 90 days after the date of publication in the U.S. Federal Register of final regulations addressing dividend equivalent withholding. If any payments are treated as dividend equivalents subject to withholding, we would be entitled to withhold taxes without being required to pay any additional amounts with respect to amounts so withheld. Further, non-u.s. holders may be required to provide certifications prior to, or upon the sale, redemption or maturity of our structured products in order to minimize or avoid U.S. withholding taxes. 24 The effect of the combination of risk factors may be unpredictable Two or more risk factors may simultaneously have an effect on the value of our structured products such that the effect of any individual risk factor may not be predictable. No assurance can be given as to the effect any combination of risk factors may have on the value of our structured products. Additional risks associated with our CBBCs 25 You may lose all or substantially all your investment at expiry If you hold your CBBCs until expiry and no mandatory call event occurs during the observation period, the cash settlement amount payable upon exercise at expiry will depend on how much the closing price or level of the underlying asset is above (in the case of bull CBBCs) or below (in the case of bear CBBCs) the strike price or level. The cash settlement amount may be substantially less than your initial investment in the CBBCs, and may even be zero. 26 You may lose all or substantially all of your investment upon the occurrence of the mandatory call event You may lose all or substantially all of your investment in our CBBCs if a mandatory call event occurs during the observation period of our CBBCs meaning that the price or level of the underlying asset is at any time at or below (for our bull CBBCs) or at or above (for our bear 25

28 CBBCs) the predetermined call price or call level during the observation period. The mandatory call event may be triggered by a single, small trade in the underlying share or security comprised in the underlying index, regardless of the size of the trade. The trade that triggers the mandatory call event may only be the result of a temporary fall (or rise, as the case may be) in the price or level of the underlying asset caused by a number of factors. Subsequent to the occurrence of the mandatory call event, the price or level of the underlying asset may recover to above or below, as the case may be, the call price or call level. Upon the occurrence of a mandatory call event, a Category N CBBC will become worthless while a Category R CBBC will be settled by the payment of a residual value (if any) by us. Such residual value is determined by reference to the amount by which the minimum trade price or index level of the underlying asset during the MCE valuation period exceeds the strike price or strike level (for our Category R bull CBBCs) or the amount by which the strike price or strike level exceeds the maximum trade price or index level of the underlying asset during the MCE valuation period (for our Category R bear CBBCs). This residual value may be as low as zero. Where the mandatory call event occurs in a continuous trading session of the Stock Exchange, all trades in the CBBCs concluded via auto-matching or manually after the time the occurrence of a mandatory call event will be invalid and will be cancelled and will not be recognised by us or the Stock Exchange. Where the mandatory call event occurs during a pre-opening session or a closing auction session (if applicable) of the Stock Exchange, all auction trades in the CBBCs concluded in such session and all manual trades concluded after the end of the pre-order matching period in such session will be invalid and will be cancelled and will not be recognised by us or the Stock Exchange. We will announce the occurrence of the mandatory call event in accordance with the requirements of the Stock Exchange but the announcement of the same can be delayed by among other reasons, technical errors or system failures beyond our control. Your gain or loss from a trade that is subsequently cancelled will be reversed. If in the meantime you have entered into transactions with our CBBCs as a hedge, then upon cancellation of trades in our CBBCs, you will need to find a replacement hedge and may incur losses in doing so. Under the terms and conditions of our CBBCs, none of the Stock Exchange, us, the Issuer or sponsor of the underlying asset or any of our or their affiliates or agents shall be responsible for any losses suffered as a result of the determination of the price or level of the underlying asset, any adjustments involved in determining the occurrence of the mandatory call event, the calculation of any cash settlement amount and the suspension of trading in connection with the mandatory call event, notwithstanding that such adjustments, calculation or suspension may have occurred as a result of an error. 27 Mandatory call event is irrevocable except in limited circumstances A mandatory call event is irrevocable unless it is triggered as a result of any of the following events: (a) (b) system malfunction or other technical errors of the Hong Kong Exchanges and Clearing Limited (such as the setting up of wrong call price/call level and other parameters), and such event is reported by the Stock Exchange to us and we and the Stock Exchange mutually agree that such mandatory call event is to be revoked; or manifest errors caused by the relevant third party price source where applicable (such as any miscalculation of the index level by the relevant index compiler), and such event is reported by us to the Stock Exchange and we and the Stock Exchange mutually agree that such mandatory call event is to be revoked, 26

29 in each case, such mutual agreement must be reached no later than 30 minutes before the commencement of trading (including the pre-opening session) (Hong Kong time) on the trading day of the Stock Exchange immediately following the day on which the mandatory call event occurs, or such other time frame as prescribed by the Stock Exchange from time to time. 28 A CBBC is different from a margin trading position over the same underlying asset An investment in CBBC is similar to but not the same as a corresponding margin trading position. Both are different from an actual position in the underlying asset in that an investor does not have to pay an amount equal to the maximum potential exposure of the position upon entry. Because the initial payment is small by comparison, a given change in the price or level of the underlying asset can result in a greater percentage change in the value of the investment. Whilst the total gain or loss of investing in a CBBC upon exercise at expiry may be similar to that of an equivalent margin trading position (of same size and strike price or level) on the same underlying asset, at other times a CBBC differs from an equivalent margin trading position in many ways. Generally a margin trading position will be marked-to-market at the end of every trading day so that the holder would realise the day s gain or loss immediately, unless a mandatory call event or expiry occurs the gain or loss of a CBBC is realised only when it is sold. One can maintain a margin trading position even if the underlying asset price or level continues to move against the direction anticipated, so long as the holder continues to put up additional margin, with the CBBC when the underlying asset price or level reaches the call level it is immediately terminated. Once the call level is reached, a CBBC investor would lose his entire investment (for a category N CBBC) or would only receive the residual value (if any, for a category R CBBC) and due to the call termination, he would not benefit from the reversal of direction of the underlying asset price or level subsequent to the mandatory call event (for a category N CBBC) or the determination of residual value (for a category R CBBC). This call termination feature of CBBCs (among other reasons) also means that the theoretical value of a CBBC at a time prior to its expiry will be different from that of an equivalent margin trading position. A given percentage change in the price or level of the underlying asset may not result in the same percentage change (in the same direction for a bull CBBC or in the opposite direction for a bear CBBC) in the theoretical value of the CBBC. The percentage change in theoretical value of the CBBC may be greater or smaller (or may be zero), in the same or opposite direction. The theoretical value of a CBBC at any time will also contain an amount which reflects our cost of maintaining the corresponding hedge position in the underlying asset (e.g. the cost of funding a long position in shares, the net cost of borrowing shares for short sale, or the cost of margin in maintaining the futures position). The purchase price of a CBBC you pay may include all or part of such cost and when the mandatory call event occurs, the residual value (if any) will not contain a refund of such cost. Other than at expiry (assuming mandatory call event does not occur prior to expiry) when the cash settlement amount will be set by the closing price or level of the underlying asset, at any time prior to the expiry you may sell your holding of CBBCs in the market and the price realised may or may not be the same as the theoretical value of the CBBCs, as the price will be determined by the levels of supply and demand in the market. 27

30 29 The funding costs of our CBBCs will fluctuate during the term of our CBBCs The issue price of our CBBCs is set by reference to the difference between the initial reference spot price or level of the underlying asset and the strike price or strike level, plus the applicable funding cost. The initial funding cost applicable to our CBBCs is specified in the relevant supplemental listing document. It will fluctuate during the term of our CBBCs as the funding rate changes from time to time. The initial funding cost is an amount determined by us based on one or more factors, including but not limited to the strike price or strike level (as the case may be), the prevailing interest rate, the expected term of our CBBCs, any expected notional dividends in respect of the underlying asset and the margin financing provided by us (if any). 30 Residual Value will not include residual funding cost The residual value (if any) payable by us following the occurrence of a mandatory call event will not include the residual funding cost for our CBBCs. When a mandatory call event occurs, you will lose the funding cost for the full period. Risks relating to the Group Internal risks and risks relating to the Group and its business operations 31 Changes in the credit quality and the recoverability of loans and amounts due from counterparties may have a material adverse effect on the Group s financial condition, results of operations and prospects Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of the Group s businesses. Adverse changes in the credit quality of the Group s borrowers and counterparties (both sovereign and non-sovereign), or adverse changes arising from a further deterioration in global economic conditions or asset values, or systemic failures in financial systems could reduce the recoverability and value of the Group s assets and require an increase in the Group s level of provisions for bad and doubtful debts or increase the levels of impairments or write-downs experienced by the Group. An adverse change in economic conditions could also adversely affect the Group s level of banking activity. Although the Group devotes considerable resources to managing the above risks, many of the factors affecting borrower and counterparty credit risks are beyond the control of the Group and the occurrence of any of the foregoing risks or a failure by the Group to manage these risks effectively could have a material adverse effect on the Group s financial condition, results of operations and prospects. 32 The value of certain financial instruments recorded at fair value is determined using financial models incorporating assumptions, judgments and estimates which may change over time In order to establish the value of financial instruments which the Group, under International Financial Reporting Standards as adopted by the European Union ( IFRS ), recognises at fair value, the Group relies on quoted market prices or, where the market for a financial instrument is not sufficiently active, internal valuation models that utilise observable market data. In certain circumstances, the data for individual financial instruments or classes of financial instrument utilised by such valuation models may not be available, or may become unavailable, due to changes in market conditions, as has been the case at times since the commencement of the financial crisis. In such circumstances, the Group s internal valuation models require the Group to make assumptions, judgments and estimates in order to establish fair value. In common with other financial institutions, these internal valuation models are complex, and the assumptions, judgments and estimates the Group is required to make often relate to matters that are inherently uncertain, such as expected cash flows, the ability of borrowers to service debt, asset price appreciation and depreciation, and relative levels of defaults and deficiencies. Such assumptions, judgments and 28

31 estimates may need to be updated to reflect new information, changing trends and market conditions. The resulting change in the fair values of financial instruments could have a material adverse effect on the Group s financial condition, results of operations and prospects. 33 The Group s business could be affected if its capital is not managed effectively The Group must ensure the effective management of its capital position in order to operate its business, to continue to grow organically and to pursue its strategy. Future changes that limit the Group s ability to manage its balance sheet and capital resources effectively, as well as capital decisions taken by the Group, could have a material adverse effect on the Group s regulatory capital position, its financial condition, results of operations and prospects. 34 Lack of liquidity is a risk to the Group s business Liquidity risk is the risk that the Group either does not have sufficient financial resources available to meet its obligations as they fall due, or can only access these financial resources at excessive cost. This risk is inherent in banking operations and can be heightened by a number of factors, including an over-reliance on or inability to access a particular source of funding (including, for example, reliance on inter-bank funding), the extent of mobility of intra-group funding, changes in credit ratings or market-wide phenomena such as financial market instability and natural disasters. As the Group operates in markets which have been and may continue to be affected by illiquidity and extreme price volatility, either directly or indirectly through exposures to securities, loans, derivatives and other commitments, the Group s policy is to manage its liquidity prudently in all geographic locations and for all currencies. However, any reoccurrence or prolonged continuation of such conditions could have an adverse effect on the Group s results of operations and, if severe, could have a material adverse effect on the Group s financial condition and prospects. In addition, any significant increase in the cost of acquiring deposits, inability to further increase deposits or significant outflow of deposits from the Group, particularly if it occurs over a short period of time, could have a material adverse impact on the Group s financial condition and liquidity position. 35 The Group is subject to the risk of regulators imposing more onerous prudential standards, including increased capital and liquidity requirements The Group s lead supervisor, the Prudential Regulation Authority (the PRA ), determines the minimum level of capital that the Group is required to hold by reference to its balance sheet, off-balance sheet, counterparty and risk exposures. Currently, the Group is adequately capitalised under CRD IV (as defined below) and holds sufficient liquidity resources. However, the PRA could (beyond the changes described below) apply increasingly stringent stress test scenarios in determining the required capital minima for the Group and any of its UK regulated firms, increase the minimum regulatory requirements imposed on the Group or any of its UK regulated firms, introduce certain changes to the basis on which capital and risk-weighted assets ( RWA ) are computed, impose additional capital buffers, require additional restrictions on leverage, introduce further liquidity requirements, impose new regulatory requirements and/or change the manner in which it applies existing requirements to the Group or its UK regulated firms. In order to meet such additional regulatory requirements the Group may be required to raise capital and/or liquidity or take other actions to ensure compliance which could have a material adverse impact on the Group s financial condition, results of operations and prospects. 29

32 The Group s ability to maintain its regulatory capital ratios in the longer term could be affected by a number of factors, including its RWA, post-tax profit and fair value adjustments. Capital levels and requirements are more sensitive to market and economic conditions under Basel III than under previous regimes and effective capital requirements could increase if economic or financial market conditions worsen. Basel III Capital Requirements In December 2010, the Basel Committee on Banking Supervision (the BCBS ) finalised its proposals for new capital and liquidity requirements intended to strengthen existing capital standards and to establish minimum liquidity standards (commonly referred to as Basel III ). These include new definitions of Common Equity Tier 1 Capital ( CET1 Capital ) as well as new eligibility criteria for Additional Tier 1 Capital and Tier 2 Capital. A revised version of the Basel III capital rules was published in June 2011 and further changes or clarifications are possible. Under Basel III, the minimum CET1 Capital ratio will be 4.5 per cent. of RWA, with a further capital conservation buffer of 2.5 per cent. of RWA to be made up of CET1 Capital, increasing the required CET1 Capital ratio to 7 per cent. of RWA. The minimum total capital ratio (including the capital conservation buffer of 2.5 per cent.) will increase from 8 per cent. to 10.5 per cent. of RWA. In addition, banks will need to satisfy a minimum leverage ratio requirement which has been set at 3 per cent. of Tier 1 Capital over total exposures from 1 January 2018 subject to future review and calibration. National regulators may impose an additional counter-cyclical capital buffer of up to 2.5 per cent. of RWA. The BCBS proposed that the Basel III requirements be introduced on a phased basis, with final implementation by 1 January Global systemically important banks ( G-SIBs ) will be required to maintain regulatory capital in excess of the Basel III minimum standards. According to the approach finalised by the BCBS in November 2011 and updated in July 2013, G-SIBs will need to meet an additional CET1 Capital requirement ranging from 1 per cent. to 2.5 per cent. of RWA, depending on their perceived systemic importance. The higher capital requirements for G-SIBs will be phased in between 2016 and The Group was designated a G-SIB by the Financial Stability Board ( FSB ) when it published its most recent list of G-SIBs. The Group has been categorised within the 1 per cent. capital buffer requirement and will need to meet this additional capital requirement between 2016 and January 2019 if it is still on the G-SIB list that is published in early Certain of the Group s non-uk entities may be designated domestic systemically important banks in the markets in which they operate in accordance with the approach developed by the BCBS and FSB, which may result in higher capital requirements for such entities. CRD IV Capital Requirements Basel III has been implemented in the European Union ( EU ) through legislation replacing the EU Capital Requirements Directive II. The new legislation is commonly referred to as CRD IV and consists of an EU directive and a regulation. Agreement of the CRD IV text was reached on 16 April 2013 and the final text was published in the Official Journal of the EU on 26 June Member states were required to apply the new requirements (with certain exceptions and subject to transitional arrangements) from 1 January On 19 December 2013, the PRA published its final statement of policy, rules and supervisory statements required to implement CRD IV in the UK for banks, building societies and PRA designated investment firms. This outlined how the PRA would treat certain aspects of CRD IV where they had national discretion, including capital filters and deductions, the implementation of Pillar 1 capital requirements and the grandfathering treatment of existing non-qualifying capital instruments. At a Group level, the PRA is applying all CET1 Capital filters and deductions in full from 1 January 2014 and not using the transitional provisions available within CRD IV. With respect to the phase-in of Pillar 1 capital requirements, the PRA is using the transitional provisions 30

33 available in CRD IV. From 1 January 2014 to 31 December 2014, the minimum Pillar 1 CET1 Capital ratio will be 4 per cent., rising to 4.5 per cent. from 1 January 2015 onwards. Similarly, during the same period, the required Pillar 1 Tier 1 capital ratio will be 5.5 per cent., rising to 6 per cent. from 1 January 2015 onwards. According to CRD IV, capital instruments issued prior to 31 December 2011 that do not qualify as Additional Tier 1 Capital or Tier 2 Capital will be phased out over a transitional period. The PRA has confirmed that the level of recognition of such instruments will be capped at 80 per cent. as at 1 January 2014, and will decline by 10 per cent. each subsequent year, being fully phased out by 1 January Further, instruments with an incentive to redeem (e.g. with an interest step-up) will be phased out at their effective maturity date. The European Banking Authority has been tasked by the European Commission with developing technical standards ( EBA Technical Standards ) in respect of many of the CRD IV requirements, facilitating the creation of a single EU rulebook for banks. These technical standards will need to be adopted by the European Commission to come into force. There is uncertainty on the final impact of CRD IV as certain EBA Technical Standards have not been finalised or published. UK Banking Reform The Financial Services (Banking Reform) Bill, first published in October 2012, received Royal Assent in December 2013, becoming an Act of Parliament. The Act will implement the recommendations of the Independent Commission on Banking including the requirement for certain UK banks to hold minimum levels of Primary Loss-Absorbing Capacity ( PLAC ) and to ring-fence their retail operations, as well as many of the Parliamentary Commission on Banking Standards ( PCBS ) recommendations around professional standards and culture. The Group does not have significant retail banking operations in the European Economic Area, so will not be required to ring-fence its retail operations. The Act will be supplemented by secondary legislation, which is still being developed, and the Financial Conduct Authority ( FCA ) and PRA rules which are yet to be formulated. The main provisions of the Act that will impact the Group are: 1. The requirement to hold a minimum level of PLAC regulatory capital and debt instruments that can be bailed-in when a bank fails by ring-fenced banks and G-SIBs. The Group will be required to hold PLAC by virtue of being categorised as a G-SIB. The actual amount and implementation timelines are not set out in the Act and will be determined in accordance with the EU Recovery and Resolution Directive and the detailed rules that the PRA will be developing in The imposition of higher standards of conduct on the banking industry by introducing a criminal sanction for reckless misconduct that leads to bank failure, and a more stringent approval regime for senior bankers. The territorial scope of application will not be known until the FCA / PRA publish their detailed rules. 3. The PRA will be required to undertake a review of banks proprietary trading activities. This may lead to future requirements for such activities to be ring-fenced or prohibited. 4. The Bank of England is required to undertake a review of the need for it to have powers to set the leverage ratio higher and at an earlier date than the international standards proposed by the BCBS. The review is expected to be completed in 2014 and it is possible that it may lead to a higher leverage ratio standard for UK banks in the future. 31

34 New liquidity standards under Basel III and CRD IV Under Basel III as implemented in Europe by CRD IV, banks will be required to meet two new liquidity standards: a liquidity coverage ratio ( LCR ) and a net stable funding ratio ( NSFR ). The LCR will require banks to hold an amount of unencumbered, high quality liquid assets that can be used to offset the net cash outflows the bank could encounter under an acute short-term liquidity stress scenario. The NSFR will measure the amount of longer-term, stable sources of funding employed by a bank relative to the liquidity profiles of the assets funded and the potential for contingent calls on liquidity arising from off-balance sheet commitments and obligations, although the details of the NSFR are subject to further development and calibration. The LCR will be introduced on 1 January 2015 and the minimum requirement will begin at 60 per cent., rising in equal annual steps of 10 percentage points to reach 100 per cent. on 1 January The NSFR will remain subject to an observation period ahead of its planned implementation on 1 January In addition, the PRA has its own liquidity standards based on the following elements: (i) principles of self-sufficiency and adequacy of liquidity resources, (ii) enhanced systems and control requirements, (iii) quantitative requirements, including Individual Liquidity Adequacy Standards, coupled with a narrow definition of liquid assets and (iv) frequent regulatory reporting. SCB meets the minimum requirements set by the PRA. UK Macro-prudential Regulation The Financial Services Act 2012 empowers the Financial Policy Committee ( FPC ) of the Bank of England to give directions to the PRA and the FCA so as to ensure implementation of macro-prudential measures intended to manage systemic risk. HM Treasury consulted in October 2013 on a proposal to provide the FPC with the power to impose the counter-cyclical capital buffer in advance of the international timeline of The Government intends that the FPC should be able to require the PRA to impose additional specific capital requirements on banks to address risks to the UK market for banking services. The Government intends to provide the FPC with a power of direction over the leverage ratio although the date of implementation is unclear at present, and will be subject to the outcome of the Bank of England s review on the leverage ratio being undertaken this year. In the meantime, the FPC intends to manage systemic risks impacting the UK financial system using its power of direction to set sectoral capital requirements or through its power to make recommendations to the PRA, FCA and other parties. The new powers conferred on the FPC will enable it to set higher prudential standards for UK banks through the PRA, although it is not yet possible to ascertain definitively what the impact of exercising such powers would be on the Group. If the regulatory capital requirements, liquidity requirements or other requirements applied to the Group are increased in the future, any failure by the Group to satisfy such increased requirements could result in regulatory intervention or sanctions (including loss or suspension of a banking licence) or significant reputational harm, which in turn may have a material adverse effect on the Group s financial condition, results of operations and prospects. Common Equity Tier 1 Capital, Core Tier 1 Capital Additional Tier 1 Capital, Innovative Tier 1 Capital, Tier 1 Capital, Tier 2 Capital and Tier 3 Capital, depending on the context, have the meaning (i) given to such terms in the General Prudential Sourcebook for Banks, Building Societies, Insurers and Investment Firms (as set out in the Prudential Regulation Authority Handbook),(ii) other guidance or rules of the PRA or (iii) required under Basel III and/or CRD IV (including EBA Technical Standards). 32

35 36 Failure to manage legal and regulatory risk properly can impact the Group adversely The Group is subject to a wide variety of banking and financial services laws and regulations and is supervised by a large number of regulatory and enforcement authorities in each of the jurisdictions in which it operates. As a result, the Group is exposed to many forms of legal and regulatory risk, which may arise in a number of ways, primarily: losses may be caused by changes in applicable laws and regulations or in their application; the Group may not be able to predict the timing or form of any current or future regulatory or law enforcement initiatives which are becoming increasingly common for international banks and financial institutions; as a result of being subject to a variety of complex legal and regulatory regimes in many of the countries where it operates, in respect of which requirements, standards or sanctions may differ significantly from country to country; as a result of being subject to extensive laws and regulations which are designed to combat money laundering and terrorist financing, and to enforce compliance with sanctions against designated countries, entities and persons, including countries in which, and entities or persons with which, the Group may conduct and may have conducted business from time to time; risk from defective transactions or contracts, either where contractual obligations are not enforceable or do not allocate rights and obligations as intended, or where contractual obligations are enforceable against the Group in an unexpected or adverse way, or by defective security arrangements; the title to and ability to control the assets of the Group (including the intellectual property of the Group, such as its trade names) may not be adequately protected; and allegations being made against the Group claiming liability for damages to third parties including where legal proceedings are brought against it; regardless of whether such claims have merit, the outcome of legal proceedings is inherently uncertain and could result in financial loss. Although the Group has processes and controls to manage legal and regulatory risks, failure to manage such risks properly may impact the Group adversely or result in administrative actions, penalties or other proceedings involving the Group which may have a material adverse effect on the Group s business, reputation, its financial condition, results of operations and prospects. In addition, a failure to comply with applicable laws or regulations by the Group s employees, representatives, agents and third party service providers, either in or outside the course of their employment or services, or suspected or perceived failures by them, may result in enquiries or investigations by regulatory and enforcement authorities, or in regulatory or enforcement action against the Group or such employees, representatives, agents and third party service providers in various jurisdictions. Such actions may adversely impact the reputation of the Group, result in adverse media reports, lead to increased levels of scrutiny by relevant regulatory or supervisory bodies, additional costs, penalties, claims and expenses being incurred by the Group and, as a result, have a material adverse effect on the Group s ability to conduct its business, its financial condition, results of operations and prospects. 33

36 37 Operational risks are inherent in the Group s business Operational risk is the risk of direct or indirect loss due to an event or action resulting from the failure of internal processes, people and systems, or from external events. Operational losses can result, for example, from fraud, errors by employees, failure to document transactions properly or to obtain proper authorisation, failure to comply with legal or regulatory requirements or conduct of business rules (including regimes covering anti-money laundering and anti-terrorism, applicable sanctions, insider dealing, market manipulation and market abuse or similar behaviour, including practices for setting market interest rates and other benchmarks) or equipment failures, natural disasters or the failure of external systems. The Group seeks to ensure that operational risks are managed in a timely and effective manner, through a framework of policies, procedures and tools but this framework may prove inadequate in managing such risks. Any of these risks could have a material adverse effect on the Group s ability to conduct business, its financial condition, results of operations and prospects. However, this does not imply that either SCB or the Group will be unable to comply with their obligations as a supervised firm regulated by the PRA and the FCA. 38 Practice and process reviews in certain markets may present risk in terms of not being able to predict scope and outcome of these reviews The Group seeks to comply with all applicable laws and regulations but may be subject to regulatory actions and investigations across our markets, the outcome of which may be difficult to predict and can be material to the Group. The Group seeks to co-operate with regulators in response to requests for information, inquiries and investigations and takes remedial actions as necessary. Regulators and other agencies in certain markets are conducting investigations into or reviews of a number of areas of market conduct, including sales and trading, involving a range of financial products and submissions made to set various market interest rates and other financial benchmarks, such as foreign exchange. At relevant times, certain of SCPLC s branches and/or subsidiaries were (and are) members of panels in some of those markets, submitting data to bodies that set such rates and benchmarks. The Group is participating in reviews of practices and processes in those markets. It is not possible to predict the scope and ultimate outcome of these or future reviews, including the timing or potential impact of their conclusions. In 2012 the Group reached settlements with the US authorities regarding US sanctions compliance in the period 2001 to 2007, involving a Consent Order by the New York Department of Financial Services ( NYDFS ), a Cease and Desist Order by the Federal Reserve Bank of New York ( FRBNY ), Deferred Prosecution Agreements with each of the Department of Justice and with the District Attorney of New York (each a DPA ) and a Settlement Agreement with the Office of Foreign Assets Control. In addition to the civil penalties totalling $667million, the terms of these settlements (together the Settlements ) include a number of conditions and ongoing obligations with regard to improving sanctions and Anti-Money Laundering ( AML ) and Banking Secrecy Act ( BSA ) controls such as remediation programmes, reporting requirements, compliance reviews and programmes, banking transparency requirements, training measures, audit programmes, disclosure obligations and the appointment of an independent monitor. These obligations are managed under a programme of work referred to as the US Supervisory Remediation Program ( SRP ). The SRP comprises workstreams designed to ensure compliance with the remediation requirements contained in all of the Settlements. Provided the Group fulfils all the requirements imposed by the DPAs, the applicable charges against the Group will be dismissed at the end of the two year term of those agreements. The Group has established a Financial Crime Risk Mitigation Programme ( FCRMP ) which is a comprehensive, multi-year programme designed to review many aspects of the Group s existing approach to anti-money laundering and sanctions compliance and to enhance them as appropriate. 34

37 One key component of the FCRMP is to oversee and manage the SRP. As part of the FCRMP the Group or its advisors may identify new issues, potential breaches or matters requiring further review or further process improvements that could impact the scope or duration of the FCRMP. The Group is engaged with all relevant authorities to implement these programmes, meet the obligations under the Settlements and respond to further requests for information and inquiries related to its historic, current and future compliance with sanctions regimes. The Group recognises that its compliance with historic, current and future sanctions, as well as AML and BSA requirements, and customer due diligence practices, not just in the US but throughout its footprint, is and will remain a focus of the relevant authorities. 39 The business of the Group may be affected if it is unable to recruit, retain and develop appropriate senior management and skilled personnel The Group s continued success depends in part on the continued service of key members of its management team and other skilled personnel. The ability to continue to attract, train, motivate and retain highly qualified professionals is a key element of the Group s strategy. The successful implementation of the Group s growth strategy depends on the availability of skilled management at its head office and at each of its business units and international locations. Competition for skilled management and other employees is particularly evident in a number of the geographic areas in which the Group operates, particularly, in emerging markets. If the Group or one of its business units or other functions fails to staff their operations appropriately, or loses one or more of its key senior executives and fails to replace them in a satisfactory and timely manner, its business, financial condition and results of operations, including control of operational risks, may be adversely affected. Likewise, if the Group fails to attract and appropriately train, motivate and retain qualified professionals, its business, and in particular the ability to expand in certain areas, may be adversely affected, which could have a material adverse effect on the Group s financial condition, results of operations and prospects. The European Union ( EU ) and the UK regulators have introduced, and are planning to introduce further, requirements in respect of remuneration which could potentially affect the ability of the Group to recruit, retain and motivate appropriate senior management and skilled personnel. In particular, restrictions have applied from 1 January 2011 on the payment, structure and disclosure of bonuses and other non-contractual remuneration to senior management and anyone whose professional activities could have a material impact on a firm s risk profile. These restrictions apply globally to the Group but similar restrictions do not apply to competitors based outside the EU, notably in the Group s core markets across Asia (except Hong Kong), Africa, and the Middle East which creates an uneven playing field when competing in those markets for talent with other local and non-eu international banks. In addition to the existing remuneration requirements, CRD IV will limit, with effect from the 2014 performance year, the amount of variable compensation that can be paid for certain regulated staff to a maximum of two times their fixed compensation. This may have global implications for the Group as such a requirement would not apply to competitors headquartered outside the EU operating in the Group s core markets. Such provisions may also have a significant impact on both the Group s ability to manage the variable compensation pool in stress situations and to compete and retain talent. Any of these matters could have a material adverse effect on the Group s ability to conduct its business, its financial condition, results of operations and prospects. 35

38 40 The Group is expanding its operations and this growth may represent a risk if not managed effectively The Group s business strategy is based on organic growth but includes selective plans to continue to acquire assets or businesses that it believes are logical extensions of its existing businesses to increase cash flow and earnings. The Group continues to look at potential acquisitions in a number of markets. The Group may experience some, or all, of the difficulties described below in managing the integration of any subsequent acquisitions into its existing businesses. The failure to manage effectively its expansion, whether organic or inorganic, could have a material adverse effect on the Group s financial condition, results of operations and prospects. The success of the Group s acquisitions will depend, in part, on the ability of its management to integrate the operations of newly acquired businesses with its existing operations and to integrate various departments, personnel, systems and procedures. Consequently, the Group s ability to implement its business strategy may be constrained and the timing of such implementation may be impacted due to demands placed on existing resources by the acquisition and integration process. There can be no assurance that: the Group will be successful in acquiring all the entities it seeks to acquire; the acquired entities will achieve the level of performance that the Group anticipates, or that the carrying value of goodwill on acquisition will be fully supported by the cash flows of the cash generating unit to which it has been allocated for the purposes of impairment testing (and, therefore, the value of the assets being carried may be written-down or impaired); the projected demand for and prices of the Group s products and services will be realised; the acquired entities will not cause a disruption to the Group s ongoing businesses, distract management attention and other resources, or make it difficult to maintain the Group s standards, internal controls and procedures; the Group will not be required to incur debt or issue equity securities to pay for acquisitions, for which financing may not be available or may not be available on commercially attractive terms; the Group will realise any or all of the intended synergy or growth benefits expected at the time of acquisition; the Group s credit ratings will not be negatively affected by such acquired entities or the method of financing any acquisition or acquired business; the Group will be able to successfully integrate the services, products and personnel of an acquired entity into its operations, especially if the Group acquires large businesses; or the Group will not assume unforeseen liabilities and exposures as a result of such acquisitions. The occurrence of any one or a combination of these events could have a material adverse effect on the Group s financial condition, results of operations and prospects. 36

39 41 The Group s business is subject to reputational risk Reputational risk is the potential for damage to the Group s franchise, resulting in loss of earnings or adverse impact on market capitalisation as a result of stakeholders taking a negative view of the Group or its actions. Reputational risk could arise from the failure by the Group to effectively mitigate the risks in its businesses including one or more of country, credit, liquidity, market, regulatory, legal or other operational risk. Damage to the Group s reputation could cause existing clients to reduce or cease to do business with the Group and prospective clients to be reluctant to do business with the Group. All employees are responsible for day to day identification and management of reputational risk. These responsibilities form part of the Group Code of Conduct and are further embedded through values-based performance assessments. Reputational risk may also arise from a failure to comply with environmental and social standards. Our primary environmental and social impacts arise through our relationship with our clients and customers and the financing decisions we take. We have published a series of position statements which we apply in the provision of financial services to clients who operate in sectors with specific risks, and for key issues. We have mechanisms in our origination and credit processes to identify and assess environmental and social risks, and dedicated Sustainable Finance teams who review proposed transactions with identified risks. Material damage to the Group s reputation with one or more of its key stakeholders could have a material impact on the future earning capacity of the Group through the loss of current and prospective customers or through damage to key governmental or regulatory relationships. A failure to manage reputational risk effectively could materially affect the Group s business, results of operations and prospects. 42 The Group is exposed to pension risk Pension risk is the potential for loss due to having to meet or meeting an actuarially assessed shortfall in the Group s pension schemes. Pension risk exposure is focused upon the risk to the Group s financial position arising from the need to meet its pension scheme funding obligations. In the event of a shortfall the Group may be required or may choose to make additional payments to the Group s pension schemes which, depending on the amount, could have a material adverse effect on the Group s business, results of operations and prospects. 43 The banking industry is a target for fraud and other criminal activity The banking industry has long been a target for third parties seeking to defraud, to disrupt legitimate economic activity, or to facilitate other illegal activities. The risk posed by such criminal activity is growing as criminals become more sophisticated and as they take advantage of the increasing use of technology and the internet. The incidence of cyber crime is rising, becoming more globally coordinated, and is a challenge for all organisations. The Group seeks to be vigilant to the risks of internal and external crime in its management of people, processes, systems and in its dealings with customers and other stakeholders. The Group has a broad range of measures in place to monitor and mitigate these risks. We have a set of techniques, tools and activities to detect and respond to cyber crime, in its many forms. We actively collaborate with our peers, regulators and other expert bodies as part of our response to this risk. However, such measures may not be adequate and these risks could have a material adverse effect on the Group s ability to conduct business, its financial condition, results of operations and prospects. 37

40 44 The European Commission s proposals for the Bank Recovery and Resolution Directive may restrict the Group s business operations and lead to an increase in its costs of doing business. On 20 December 2013, political agreement was reached on the proposals for an EU Directive to create a framework for the recovery and resolution of EU banks and investment firms ( Institutions ), which includes powers for EU regulators to facilitate the orderly resolution of failing Institutions. The directive, will give powers to EU regulators and other bodies responsible for resolution activities ( Resolution Authorities ) to recapitalise Institutions in severe financial difficulty breaching the point of non-viability by writing-down shares and other regulatory capital instruments issued by such firms (or converting regulatory capital debt instruments into shares) ( Regulatory Capital Write-Down Powers ). Resolution Authorities will also have powers to bail-in other unsecured liabilities of an Institution in a resolution scenario ( Bail-In Powers ), i.e. to impose losses of a failed or failing Institution onto certain creditors by writing down their unsecured liabilities or by converting them into shares. The Bank Recovery and Resolution Directive ( BRRD ) will introduce three categories of measures: preparatory and preventative measures, early intervention powers, and resolution powers. When these proposals are implemented, they will directly affect the rights of shareholders and creditors, and could potentially alter or restrict the Group s business operations in certain situations, or increase the cost of doing business for the Group. The transposition date for the majority of the provisions of the BRRD is However, provisions relating to the bail-in powers will be transposed into the national law of EU member states by 1 January The UK is expected to introduce formal bail in powers in Institutions and groups will be required to produce and keep up-to-date recovery plans to withstand a significant deterioration in their financial position. Institutions will also be required to provide detailed information about their businesses and entities, from which Resolution Authorities will be required to produce plans for resolving the institution and its group. The need to prepare and submit recovery plans and resolution plan-related information (and requirements to keep such plans and information up-to-date on a regular basis) is likely to represent a significant operational burden. Institutions that are subject to the BRRD will be required to make ex ante contributions to support resolution funds, such contributions being proportionate to their liabilities (possibly excluding own funds and covered deposits). These resolution funds will be set up to ensure the effective application of resolution powers by Resolution Authorities. The amounts to be contributed by individual Institutions are yet to be determined but it is expected that contributions will be made on an annual basis, beginning once the BRRD has been implemented, and could represent a material cost to SCB or the Group, although the UK has effectively obtained powers to treat the UK Bank Levy as the chosen source of such funding going forward. Institutions may also be required to make an extraordinary ex-post contribution if the amounts raised by the ex ante contributions are insufficient to cover the losses, costs or other expenses involved in the resolution of an Institution or Institutions. Article 50 of the BRRD requires contractual provisions to be inserted in a broad range of creditor documentation governed by third country (non EU) law within branches of SCB. Work is underway to define and size the potential competitive disadvantages arising from the impact of this Article in those third country jurisdictions in which SCB maintains a branch presence. The BRRD also requires firms to hold loss absorbing capacity ( LAC ) although the specific levels of LAC will be defined on a firm by firm basis. The level of LAC to be maintained by the Group is yet to be finalised but is likely to be material. The BRRD will extend the existing powers of regulators to intervene at an appropriately early stage to facilitate the recovery of viable Institutions, including powers to remove and replace board members, implement one or more measures identified in the Institution s recovery plan, require 38

41 changes to the legal or operational structure of the Institution or appoint special managers to restore the financial health of the Institution. Resolution Authorities may also require that Institutions take certain measures that would improve the resolvability of the Institution or its group, which may necessitate changes to the structure of an Institution s group or its operational strategy (for example, requiring groups to subsidiarise certain businesses or critical services). In a resolution scenario, a number of powers will be conferred on Resolution Authorities under the BRRD to facilitate the orderly resolution of a failing Institution (and certain of its holding companies), including powers to: (i) (ii) transfer, cancel or write-down shares and debt instruments of an Institution or procure the issue of new shares or other capital instruments, including preference shares and contingent convertible instruments; amend or alter the maturity of debt instruments issued by an Institution or amend the amount of interest payable or the date on which interest becomes payable under such instruments; (iii) transfer assets, rights and liabilities of an Institution free from any legal or contractual restriction on such transfers; (iv) (v) require an Institution to provide any services or facilities that are necessary to enable a purchaser of the Institution s business to operate that business effectively; and require the transfer of property located in non-eu jurisdictions. The wide-ranging powers to intervene and alter an Institution s business, operations and capital and debt structure that will be conferred by the BRRD could have significant consequences for the Group s profitability, its financing costs and implementation of its global strategy if such powers were ever exercised. In addition to the direct impact of the statutory write-down and conversion powers described above, changes to the Group s business activities that may be implemented through the powers described above may affect the Group s or its subsidiaries ability to pay any cash settlement amount under the structured products. The exercise of any of the foregoing powers may have a material adverse effect on the Group s financial condition, results of operations and prospects. 45 The Group may face increased compliance costs as a result of tax legislation passed in the United States In March 2010, the United States passed legislation that would require non-united States banks to provide information on United States account holders. The first reports will be provided to the US Internal Revenue Service in If this information is not provided in a form satisfactory to the United States tax authorities, that bank will have a 30% withholding tax applied to certain amounts derived from United States sources, and possibly in the future, non-united States sources. The increased due diligence of customer information and the reporting of information to the US authorities will increase operational and compliance costs for banks. At this time, it is not possible to quantify the full costs of complying with the new legislation as some aspects are still to be determined. No assurance can be given about the likelihood of further changes to this regime either: (i) in the U.S. or other countries; (ii) to the Group s particular business sectors; or (iii) specifically in relation to the Group. Moreover, governmental authorities of jurisdictions outside the United States are considering passing similar legislation. Any or all of these factors could have a material adverse effect on the conduct of the business of the Group, its strategy and profitability, and therefore its financial condition, results of operations and prospects. 39

42 46 Changes in law or regulation applicable to derivatives may adversely affect the Group s business and the Group may face increased costs and/or reduced revenues The business of the Group is subject to increased regulation and regulatory changes at both a local and global level which may increase the costs of, and/or reduce the revenue from, its business. The Group is subject to financial services laws, regulations, administrative actions and policies in each location in which the Group operates. Financial regulators around the world have responded to the recent financial crisis by proposing significant changes to the regulatory regime applicable to financial service companies such as ours. Changes to the current system of supervision and regulation, or any failure to comply with applicable laws and rules could materially and adversely affect the Group s business, financial condition or operations. In July 2010, the United States passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act ). The Dodd-Frank Act established wide-ranging reform of the US regulatory system designed to contain systemic risk (central clearing, margin requirements, capital) and increase market transparency (real-time reporting, exchange or SEF trading, disclosure and record retention). The legislation also introduces registration and oversight of key entities engaging in swaps. The Group is not a US Person and it is registered with the Commodity Futures Trading Commission ( CFTC ) as a Non-US Person Swap Dealer. The reforms have not all taken effect immediately as relevant federal regulatory agencies have been issuing new rules, implementing regulations, and instructing the relevant regulatory agencies to examine specific issues before taking any action. The Group therefore continues to track and assess the impact of the reforms as and when further detail and timing is known. On 16 August 2012, the European Market Infrastructure Regulation ( EMIR ) (formally known as Regulation (EU) No 648/2012 of the European Parliament and the Council on OTC Derivatives, Central Counterparties and Trade Repositories) came into force. EMIR imposes requirements to report all derivative transactions to authorised or recognised trade repositories and the obligation to clear on authorised or recognised central clearing counterparties certain OTC derivative transactions executed with financial counterparties and non-financial counterparties who exceed certain clearing thresholds. EMIR also introduces a stringent risk mitigation regime for all uncleared OTC derivative transactions including a requirement to exchange collateral or margin. The regulatory changes and resulting requirements of the Dodd-Frank Act, EMIR and similar international reform efforts may increase the costs of, and/or reduce the revenue from, engaging in transactions in OTC derivatives ( Transactions ) and related activities for the Group. Provisions of the Dodd-Frank Act may cause or require certain market participants to transfer some of their derivatives activities to separate entities, which may not be as creditworthy as the current entities. Accordingly, the ability to enter into and perform Transactions or engage in future Transactions may be affected in unpredictable ways, including increasing the costs of or reducing the incentives for engaging in such activities. New regulations may also put restraints on the way the Group can conduct its business with regard to derivatives, if those derivatives are not cleared through a central clearing house. No assurance can be given about the likelihood of further changes to this regulatory regime either (i) in the US or other countries; (ii) to the Group s particular business sectors; or (iii) specifically in relation to the Group. Any or all of these factors could impact the conduct of the business of the Group, its strategy and profitability, and therefore its financial condition, results of operations and prospects. 40

43 External Risk Factors 47 Macroeconomic risks could result in a material adverse effect on the Group s financial condition, results of operations and prospects The Group operates in over 68 countries and territories and is affected by the prevailing economic conditions in each market. Macroeconomic factors have an impact on personal expenditure and consumption, demand for business products and services, the debt service burden of consumers or businesses, and the general availability of liquidity and credit. All these factors may impact the Group s financial condition, results of operations and prospects. The world economy is coming out of a difficult period and uncertainty remains. The unwinding of the US Federal Reserve s quantitative easing programme could lead to higher interest rates, volatility in financial markets and capital flight from emerging markets which may threaten the growth trajectory of some vulnerable economies. A slowdown in China s growth may depress prices and trade in a number of commodity sectors such as energy, metals and mining sectors, and a prolonged slowdown could have wider economic repercussions. The sovereign crisis in the eurozone is not fully resolved and, although acute risks have been addressed by ongoing policy initiatives, there is still a need for substantial new structural reform and risks remain of secondary impacts from events in the West on financial institutions, other counterparties and global economic growth. The linkages between economic activities in different markets are complex and depend not only on direct drivers such as the balance of trade and investment between countries, but also on domestic monetary, fiscal and other policy responses to macroeconomic conditions. For example, changes in monetary policy could lead to significant increases in interest rates from their currently low historical levels, with resulting impacts on the wider economy and on property values. Consequently, one uncertainty for the corporate sector will be the extent to which exports are impacted by any slowdown in the global economy. Similarly, there may be uncertainty about domestic demand in the Group s markets, which is a function of a number of factors including consumer and business confidence. Another principal uncertainty for the Group relates to the management of inflationary pressures, to the extent to which they arise. These inflationary pressures may be exacerbated in some countries by the reduction or removal of fuel price subsidies and the impact of significant rises in the price of certain foodstuffs. An increase in inflation can have a number of adverse impacts on the Group s business, including, but not limited to, increasing its operating expenses. High inflation could also have an adverse effect on the credit quality of the Group s individual and corporate borrowers, as well as its counterparties, and could lead to an increase in delinquencies and defaults across a wide range of sectors and otherwise have a material adverse effect on the Group s financial condition, results of operations and prospects.. Whilst the Group maintains significant geographic and business diversification which may minimise the impact of certain economic factors including a downturn, diversification of the Group may not be effective to safeguard the Group from the effect of macroeconomic factors which may impact on the overall economy in a single country or region, or globally. The Group seeks to manage this risk by setting concentration caps (by counterparty or groups of connected counterparties, by industry sector and country for corporate clients and by product and country for retail customers), and by regularly monitoring credit exposures and political and economic trends. Additionally, the Group conducts stress tests to assess the effects of extreme but plausible trading conditions on our portfolio and also continuously reviews the suitability of our risk policies and controls. 41

44 48 The Group operates primarily in Asia, Africa and the Middle East, and these operations expose it to risks arising from the political and economic environment of markets in these areas that could adversely affect its financial condition, results of operations and prospects The Group faces significant economic and political risks, including risks arising from economic volatility, recession, inflationary pressures, exchange rate fluctuation and interruption of business, as well as from civil unrest, imposition of exchange or capital controls, sanctions relating to specific countries, entities and individuals, expropriation, nationalisation, renegotiation or nullification of existing contracts and changes in law, tax policy and regulation. Furthermore, while many of the economies in which the Group operates have in recent years performed relatively well compared to many of the economies of Western Europe and North America, there can be no assurance that the relatively favourable economic environments in these markets will continue. The occurrence of any of these risks could result in a material adverse effect on the Group s financial condition, results of operations and prospects. 49 The Group operates in competitive markets, which may have a material adverse effect on its financial condition, results of operations and prospects The Group is subject to significant competition from local banks and other international banks carrying on business in the markets in which it operates, including competitors that may have greater financial and other resources. In addition, the Group may experience increased competition from new entrants in the relevant product or geographic markets and existing competitors may combine to increase their existing market presence or market share. Furthermore, in certain of the Group s markets, it competes against financial institutions that are supported or controlled by governments or governmental bodies and which are required to satisfy certain lending thresholds and other identified targets. In such markets, in order to remain competitive, the Group may not realise the margins which it would otherwise have expected or desired. Regulations may also favour local banks by restricting the ability of international banks, such as the Group, operating in the relevant country to enter the market and/or expand their existing operations. Such restrictions could adversely affect the Group s ability to compete in these markets. In addition, certain competitors may have access to lower cost funding and be able to offer retail deposits on more favourable terms than the Group. Furthermore, the Group s competitors may be better able to attract and retain clients and talent, which may have a negative impact on the Group s competitive position and profitability in the relevant markets. Moreover, many of the international and local banks operating in the Group s markets compete for substantially the same customers as the Group and competition may increase in some or all of the Group s principal markets. The foregoing matters, individually or in combination, may have a material adverse effect on the Group s financial condition, results of operations and prospects. 50 The Group operates in a highly regulated industry and changes to bank regulations and laws could have an adverse impact on its operations, financial condition or prospects The Group s businesses are subject to a complex framework of financial services laws and regulations and associated legal and regulatory risks, including the effects of changes in laws, regulations, policies and voluntary codes of practice. As a result of the financial crisis, there has been a substantially enhanced level of governmental and regulatory intervention and scrutiny, and there have been, and are expected to be, further changes to regulations applying to financial institutions. Additional changes to laws and regulations are under consideration in many jurisdictions. Although the Group works closely with its regulators and regularly monitors the situation, future changes in laws, regulations and fiscal or other policies can be difficult to predict and are beyond the control of the Group. Furthermore, laws and regulations may be adopted, enforced or interpreted in ways that could materially adversely affect the Group s business, financial condition, results of operations and prospects. 42

45 Governmental policies and regulatory changes that could adversely impact the Group s business include: the monetary, interest rate and other policies of central banks and regulatory authorities; general changes in governmental or regulatory policy, or changes in regulatory regimes that may significantly influence investor decisions in particular markets in which the Group operates, may change the structure of those markets and the products offered, or may increase the costs of doing business in those markets; changes to other regulatory requirements such as rules on consumer protection and prudential rules relating to capital adequacy and/or liquidity, charging special levies to fund governmental intervention in response to crises (which may not be tax deductible for the Group), separation of certain businesses from deposit-taking and the breaking up of financial institutions that are perceived to be too large for regulators to take the risk of their failure; Over The Counter (OTC) Derivative reforms across our markets, designed to contain systemic risk (central clearing, margin requirements, capital) and increase market transparency (real-time reporting, exchange or SEF (Swap Execution Facility) trading, disclosure and record retention); changes in competition and pricing environments; further developments in relation to financial reporting including changes in accounting and auditing standards, corporate governance, conduct of business and employee compensation; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; and other unfavourable political, military or diplomatic developments, producing social instability or legal uncertainty which, in turn, may affect demand for the Group s products and services. In response to the financial crisis and recent global economic conditions, there has already been a substantial increase in the regulation and supervision of the financial services industry in order to seek to prevent future crises and otherwise ensure the stability of institutions, including the imposition of higher capital and liquidity requirements (including pursuant to Basel III and CRD IV), increased levies and taxes, requirements to centrally clear certain transactions, heightened disclosure standards, further development of corporate governance and employee compensation regimes and restrictions on certain types of transaction structures. (See the paragraphs headed The Group is subject to the risk of regulators imposing more onerous prudential standards, including increased capital and liquidity requirements and The European Commission s proposals for the Bank Recovery and Resolution Directive may restrict the Group s business operations and lead to an increase in its costs of doing business for more detail). These new requirements could to a certain extent significantly impact on the profitability and results of operations of firms operating within the financial services industry, including entities within the Group, or could require those affected to alter their current strategies, prevent the continuation of existing lines of operations, restrict the type or volume of transactions which may be entered into or set limits on, or require the modification of, rates or fees that may be charged. The Group may also face increased compliance costs and limitations on its ability to pursue its business activities. 43

46 Whilst there is growing international regulatory cooperation on supervision and regulation of international and EU banking groups, the Group is, and will continue to be, subject to the complexity of complying with existing and new regulatory requirements in each of the jurisdictions in which it operates. Where changes in regulation are made they may not be co-ordinated, potentially resulting in the Group having to comply with different and possibly conflicting requirements. The foregoing matters may adversely impact any number of areas of the Group s operations and activities which in turn may have a material adverse effect on its financial condition, results of operations and prospects. 51 The business and operations of the Group may be affected by the provisions of the Banking Act 2009 which gives the UK Treasury and the Bank of England wide-ranging powers to make certain orders in respect of deposit-taking institutions The Banking Act 2009 came into force on 21 February 2009 and applies to deposit-taking institutions that are incorporated in or formed under the law of any part of the UK (such as SCB). It provides HM Treasury, the Bank of England (including the PRA) and the FCA with powers to deal with banks which are failing or likely to fail to satisfy the threshold conditions within the meaning of section 55B and Schedule 6 of the Financial Services and Markets Act (which is not currently the case in respect of SCB and which the Group does not consider to be likely) where it is not reasonably likely that action will be taken to satisfy those threshold conditions. The Banking Act 2009 creates a special resolution regime which comprises three stabilisation options and two insolvency procedures. The stabilisation options involve (i) the transfer of a bank or bank holding company (such as SCPLC) into temporary public ownership; (ii) the transfer of all or part of a bank to a private sector purchaser and (iii) the transfer of all or part of a bank to a bridge bank wholly owned by the Bank of England. The insolvency procedures are (i) bank insolvency, designed to ensure that eligible depositors accounts are transferred to another bank, or that eligible depositors are compensated under the Financial Services Compensation Scheme, followed by winding-up of the affairs of the bank so as to achieve the best result for the bank s creditors and (ii) a bank administration procedure designed to ensure that where the transfer of part of a bank to a private sector purchaser or bridge bank is effected in accordance with the special resolution regime, the non-sold or non-transferred bank continues to provide services and facilities to the business which has been transferred to enable the commercial purchaser or transferee to operate effectively. In February 2011, special administration procedures were introduced by the Investment Bank Special Administration Regulations 2011 for UK deposit-taking institutions that have an investment banking business. The procedures are based on the bank insolvency and bank administration procedures under the Banking Act 2009 but additionally take into account special administration objectives. HM Treasury, the Bank of England (including the PRA) and the FCA must have regard to specified objectives (the protection and enhancement of the stability of the UK financial system, protecting and enhancing public confidence in the stability of the UK banking system, protecting depositors, protecting public funds and avoiding interference with property rights in contravention of the European Convention on Human Rights) when exercising the special resolution regime powers. In addition, the final report of the ICB recommended that authorities should have a primary bail-in power allowing them to impose losses on eligible bonds (unsecured debt with a term of at least 12 months at the time of issue) in a resolution. The report also recommended that the resolution authorities should have a secondary bail-in power to impose losses on all other unsecured liabilities (including liabilities subject to a floating charge) in a resolution. Such powers are also now mandated by the EU BRRD, which requires member states to enact bail in powers by 1 January (See further the paragraph entitled The European Commission s proposals for the BRRD may restrict the Group s business operations and lead to an increase in its costs of doing business ). The Financial Services (Banking Reform) Act 2013 which was enacted in December 2013, states that bail-in powers will be brought in via secondary legislation and this is expected during

47 HM Treasury consulted in 2013 on secondary legislation under the Financial Services (Banking Reform) Act 2013 on powers to require firms to hold specific levels of LAC. Such powers are required to be introduced by all EU Member States under the BRRD. The proposals do not define specific levels of LAC but provide a guide as to the types of instruments which will be eligible to meet LAC requirements. The specific level of required LAC to be maintained by the Group is yet to be finalised but it is likely to be material. 52 Downgrades to the Group s credit ratings or downward changes in outlook could impair the Group s access to funding and the Group s competitive position The Group s ability to access the capital markets, and the cost of borrowing in these markets, is influenced by the Group s credit ratings. There can be no guarantee that the Group will not be subject to downgrades to its credit ratings and downward changes in outlook. Factors leading to any such downgrade or change in outlook may not be within the control of the Group. A material downward change in the short-term or long-term credit ratings of the Group could impact the volume, price and source of its funding, and this could have a material adverse effect on the Group s profitability, its financial condition, results of operations and prospects. 53 Changes in interest rates, commodity prices, equity prices and other market risks could adversely affect the Group s financial condition, results of operations and prospects Market risk is the potential for loss of earnings or economic value due to adverse changes in financial market rates or prices. The Group s exposure to market risk arises principally from customer driven transactions. The primary categories of market risk for the Group are: interest rate risk: arising from changes in yield curves, credit spreads and implied volatilities on interest rate options; currency exchange risk: arising from changes in exchange rates and implied volatilities on related options; commodity price risk: arising from changes in commodity prices and implied volatilities on commodity options, covering energy, precious metals, base metals and agriculture; and equity price risk: arising from changes in the prices of equities, equity indices, equity baskets and implied volatilities on related options. Failure to manage these risks effectively or the occurrence of unexpected events resulting in significant market dislocation could have a material adverse effect on the Group s financial condition, results of operations and prospects. 54 The Group is subject to the risk of exchange rate fluctuations arising from the geographical diversity of its businesses As the Group s business is conducted in a number of jurisdictions and in a number of foreign currencies, including, but not limited to, Sterling, Korean won, Hong Kong dollars, Singapore dollars, Taiwan dollars, Chinese yuan and Indian rupees, the Group s business is subject to the risk of exchange rate fluctuations. The results of operations of Group companies are reported in the local currencies in which they are domiciled, and these results are then translated into U.S. dollars at the applicable foreign currency exchange rates for inclusion in the Group s consolidated financial statements. The exchange rates between local currencies and the U.S. dollar have been and may continue to be volatile. The Group is therefore exposed to movements in exchange rates in relation 45

48 to foreign currency receipts and payments, dividend and other income from foreign subsidiaries and branches, reported profits of foreign subsidiaries and branches and the net asset carrying value of foreign investments and risk-weighted assets attributable to foreign currency operations. Whilst the Group monitors exchange rate movements, it is difficult to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on the Group and the translation effect against the U.S. dollar of such fluctuations in the exchange rates of the currencies of those countries in which the Group operates, any of which may adversely affect its financial condition, results of operations and prospects. 55 Financial markets volatility globally and in the markets in which the Group operates could result in a material adverse effect on the Group s assets, financial condition, results of operations and prospects Additional volatility, and further dislocation affecting certain financial markets and asset classes, are factors that may have a material adverse effect on the Group s assets, its financial condition, results of operations and prospects. These factors have had and may have a negative impact on the mark-to-market valuations of assets in the Group s available-for-sale and trading portfolios. In addition, any further deterioration in the performance of the assets underlying the Group s asset backed securities ( ABS ) portfolio could lead to additional impairment. The ABS portfolio accounted for approximately 1 per cent. of Group assets as at 31 December Continued market volatility may also negatively impact certain customers exposed to derivative contracts. While the Group seeks to manage customer exposure and risk, the potential losses incurred by certain customers as a result of derivative contracts could lead to an increase in customer disputes and corporate defaults and result in further write-downs or impairments by the Group. 56 Systemic risk resulting from failures by banks, other financial institutions and corporates could adversely affect the Group Within the financial services industry the default of any institution or corporate could lead to defaults by other institutions. Concerns about, or a default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions because the commercial soundness of many financial institutions may be closely correlated as a result of their credit, trading, clearing or other relationships. This risk is sometimes referred to as systemic risk and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms, other financial institutions and exchanges with whom the Group interacts on a daily basis, which could have an adverse effect on the Group s ability to raise new funding and have a material adverse effect on the Group s business, its financial condition, results of operations and prospects. 57 Country cross-border risk could have a material adverse effect on the Group s financial condition, results of operations and prospects Country cross-border risk is the risk that the Group will be unable to obtain payment from its customers (sovereign and non-sovereign) or third parties on their contractual obligations as a result of certain actions taken by foreign governments, chiefly relating to convertibility and transferability of foreign currency. These risks could have a material adverse effect on the Group s financial condition, results of operations and prospects. 46

49 58 The Group operates in some markets that have relatively less developed judicial and dispute resolution systems, which could have a material adverse effect on the Group s financial condition, results of operations and prospects In some of the less developed markets in which the Group operates, judicial and dispute resolution systems may be less developed than in North America and Western Europe. In case of a breach of contract, there may be difficulties in making and enforcing claims against contractual counterparties. On the other hand, if claims are made against the Group, there may be difficulties in defending such allegations. If the Group becomes party to legal proceedings in a market with an insufficiently developed judicial system, an adverse outcome to such proceedings could have a material adverse effect on the Group s financial condition, results of operations and prospects. 59 Hostilities, terrorist attacks or social unrest as well as natural calamities in the markets in which the Group operates could adversely affect the Group s business, results of operations and prospects The Group operates in a large number of markets around the world, and its performance is in part reliant on the openness of cross-border trade and capital flows. Geopolitical tensions or conflicts in our footprint could impact trade flows, customers ability to pay, and the Group s ability to manage capital, liquidity or operations across borders. Some of the countries in which the Group operates have, from time to time, experienced and/or are currently experiencing social and civil unrest, hostilities both internally and with neighbouring countries and terrorist attacks. Some of those countries have also experienced natural calamities like earthquakes, floods and drought in recent years. These and similar hostilities, tensions and natural disasters could lead to political or economic instability in the markets in which the Group operates and have a material adverse effect on the Group s business, its financial condition, results of operations and prospects. 60 European Banking Union The European Commission adopted proposals on 12 September 2012 for a regulation that will confer specific responsibilities on the European Central Bank (the ECB ) in respect of the prudential supervision of credit institutions. In accordance with the proposals, the ECB will become responsible for the authorisation and supervision of all credit institutions within the eurozone, and will have certain responsibilities for credit institutions incorporated outside of the eurozone that establish a branch or provide services within the eurozone on a cross-border basis. Other EU Member States (such as the UK) will be able to establish close cooperation with the ECB in which case the ECB could become responsible for the authorisation and supervision of credit institutions in such Member States. If the UK established close cooperation with the ECB, or joined the European Monetary Union, the ECB would, under the proposals, become responsible for the supervision of the Group which may differ in significant respects from that carried out by the PRA and FCA, and which, depending on the circumstances, could have a material adverse effect on the conduct of the business of the Group, its strategy and profitability, and therefore its financial condition, results of operations and prospects. 47

50 TAXATION The information below is of a general nature and is only a summary of the law and practice currently applicable in Hong Kong and the United States. It is intended to give you an overview of what Hong Kong and United States tax you might have to pay if you hold our structured products. It is not complete and we are not giving you any tax advice. You should consult your own tax adviser about the tax consequences of investing in our structured products, particularly if you are subject to special tax rules (for example, if you are a bank, dealer, insurance company or a tax-exempt entity). HONG KONG Withholding Tax We are not required under current law to make any withholding on account of Hong Kong tax from payments in respect of our structured products. Capital Gains Tax No capital gains tax is payable in Hong Kong on any capital gains arising from a sale or disposal of our structured products. Profits Tax Hong Kong profits tax may be chargeable on any gains arising from a sale or disposal of our structured products where the sale or disposal is or forms part of a trade, profession or business carried on in Hong Kong and the gains are of a Hong Kong source. Stamp Duty Our cash-settled structured products are not subject to Hong Kong stamp duty or bearer instrument duty either when issued or on any subsequent transfer. UNITED STATES FATCA Withholding Legislation known as the United States Hiring Incentives to Restore Employment Act (the HIRE Act ), which included provisions referred to as the Foreign Account Tax Compliance Act ( FATCA ), was passed in the United States on 18 March Under the HIRE Act and FATCA, we may be required to withhold moneys on account of U.S. federal tax (at a rate of 30 per cent.) on all, or a portion of: (a) (b) any payments made in respect of our structured products that are linked to the value of, or dividends on, stock issued by an entity that is treated as a U.S. corporation (or by any other entity the dividends of which would be U.S. source) for U.S. federal income tax purposes (such payments, U.S. Source Payments ); or any payments (regardless of whether such payments have any connection to a U.S. Source Payment) made after 31 December 2016 in respect of our structured products (such payments, Foreign Passthru Payments ). HIRE Act and FATCA withholding tax can affect both coupon or periodic payments and gross proceeds (including principal payments). 48

51 Based on the provisions of the HIRE Act, current regulations under FATCA, and a notice issued by the U.S. Internal Revenue Service, payments made with respect to our structured products that are not U.S. Source Payments generally will not be subject to HIRE Act or FATCA withholding tax if either (i) such structured products are issued before the Grandfather Date (as defined below) or (ii) such structured products does not provide for any payments after 31 December For these purposes, the Grandfather Date is the date that is six months after the date on which final regulations defining the term Foreign Passthru Payment are filed with the U.S. Federal Register. The relevant rules are still being developed and the future application of FATCA to us and the holders of structured products is uncertain. It is our intention, subject to further clarification and analysis of the legal requirements associated with entering into relevant legal agreements with the U.S. government, to comply with FATCA and to conclude certain FATCA agreements with the U.S. Internal Revenue Service ( IRS Agreements ) for relevant entities in the Group. Additionally, U.S. Treasury regulations issued under FATCA provide an alternative to FATCA compliance for entities that reside in jurisdictions that have entered into intergovernmental agreements ( IGAs ) with the United States. Although the relevant rules have not yet been fully developed, the United States and the United Kingdom have signed an IGA and it is our intention to comply with the relevant reporting requirements imposed therein. However, if we do not enter into an IRS Agreement or fail to comply with an applicable IRS Agreement or IGA, we may be subject to the 30 per cent. FATCA withholding tax on certain amounts derived from United States and foreign sources and would have less cash to make payments on our structured products. Additionally, as a result of FATCA (including the application of the IRS Agreements and IGAs), holders of structured products may be required to provide certain certification and information or be subject to FATCA withholding on all or a portion of the payments made to them in respect of our structured products. Investors that hold their structured products through a non-united States financial institution that has not entered into an IRS Agreement (or otherwise fully complied with FATCA) may also be subject to this U.S. withholding tax. If withholding is required under FATCA, we would be entitled to withhold taxes without being required to pay any additional amounts with respect to amounts so withheld. FATCA is particularly complex and its application is uncertain at this time. Each holder of structured products should consult its own tax advisor as to the application of FATCA to an investment in the structured products. Dividend Equivalent Payments For U.S. federal income tax purposes, a dividend equivalent payment is generally treated as a dividend from sources within the U.S. and such payments generally would be subject to a 30 per cent. (or a lower rate under an applicable treaty) U.S. withholding tax if paid to a non-u.s. holder (as defined below). Under proposed U.S. Treasury Department regulations, payments (including deemed payments) that are contingent upon or determined by reference to actual or estimated U.S. source dividends with respect to certain equity-linked instruments, whether explicitly stated or implicitly taken into account in computing one or more of the terms of such instrument, may be treated as dividend equivalents. Based on the proposed regulations and recent guidance by the U.S. Internal Revenue Service, the regulations (when enacted) will impose a withholding tax on payments made on our structured products on or after January 1, 2016 that are treated as dividend equivalents. However, the U.S. Treasury Department and Internal Revenue Service have announced that they intend to limit this withholding to equity-linked instruments issued on or after the date that is 90 days after the date of publication in the U.S. Federal Register of final regulations addressing dividend equivalent withholding. If any payments are treated as dividend equivalents subject to withholding, we would be entitled to withhold taxes without being required to pay any 49

52 additional amounts with respect to amounts so withheld. Further, non-u.s. holders may be required to provide certifications prior to, or upon the sale, redemption or maturity of our structured products in order to minimize or avoid U.S. withholding taxes. CIRCULAR 230 NOTICE. THIS NOTICE IS BASED ON U.S. TREASURY REGULATIONS GOVERNING PRACTICE BEFORE THE U.S. INTERNAL REVENUE SERVICE: (1) ANY U.S. FEDERAL TAX ADVICE CONTAINED HEREIN, INCLUDING ANY OPINION OF COUNSEL REFERRED TO HEREIN, IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING U.S. FEDERAL TAX PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER; (2) ANY SUCH ADVICE IS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS DESCRIBED HEREIN (OR IN ANY SUCH OPINION OF COUNSEL); AND (3) EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. The above summary only applies to you if you are a non-u.s. holder. You are a non-u.s. holder unless you are: (1) an individual citizen or resident of the United States, (2) a corporation, partnership or other entity (excluding a trust) that is formed or organized under the laws of the United States or any of its political subdivisions, (3) an estate that is subject to U.S. federal income taxation regardless of its source, or (4) a trust that is subject to the jurisdiction of a U.S. court and for which one or more United States persons (as defined in the U.S. Internal Revenue Code) control all of the substantial decisions, or has otherwise made an appropriate election under U.S. tax regulations. 50

53 INFORMATION ABOUT SCB AND THE GROUP You should read this base listing document (and its addendum, if any) in conjunction with the relevant supplemental listing document for updated information about us. Standard Chartered PLC ( SCPLC ), the ultimate holding company of Standard Chartered Bank ( SCB ), was incorporated and registered in England and Wales on 18 November 1969 as a company limited by shares. Its ordinary shares and preference shares are listed on the Official List and traded on the London Stock Exchange. SCPLC s ordinary shares are also listed on The Stock Exchange of Hong Kong Limited, and through Indian Depository Receipts on the Bombay Stock Exchange and National Stock Exchange of India. SCPLC operates under the Companies Act 2006 and its registered number is SCPLC s registered office and principal place of business in the United Kingdom is at 1 Basinghall Avenue, London EC2V 5DD. SCPLC s telephone number is +44 (0) SCPLC adopted new articles of association on 7 May SCB was incorporated in England with limited liability by Royal Charter on 29 December SCB s issued share capital comprises ordinary shares, all of which are owned by Standard Chartered Holdings Limited, a company incorporated in England and Wales and a wholly-owned subsidiary of SCPLC, non-cumulative irredeemable preference shares of US$0.01 each, all of which are owned by Standard Chartered Capital Investments LLC, a company incorporated in the United States, and non-cumulative redeemable preference shares of US$5.00 each, all of which are owned by SCPLC. SCB s principal office and principal place of business in the United Kingdom is at 1 Basinghall Avenue, London EC2V 5DD. SCB s reference number is ZC18. SCPLC together with its subsidiaries and subsidiary undertakings (including SCB) (the Group ) is an international banking and financial services group particularly focused on the markets of Asia, Africa and the Middle East. As at 31 December 2013, the Group had a network of around 1,700 offices and outlets in 70 markets and over 86,000 employees worldwide. On 9 January 2014 the Group announced a reorganisation, integrating its Wholesale Banking and Consumer Banking businesses to form one business, organised in three client segment groups, and serviced by five global product groups. The reorganisation will take effect on 1 April The three new client segment groups are Corporate and Institutional Clients, Commercial and Private Clients, and Retail Clients. The five new global product groups are Financial Markets, Corporate Finance, Transaction Banking, Wealth Management and Retail Products. As of 1 January 2014, the Group has also implemented a simplified structure of eight geographic regions: Greater China, Middle East, North Africa and Pakistan ( MENAP ), The Association of South East Asian Nations ( ASEAN ), North East Asia, South Asia, Africa, Europe and the Americas. Client Segment Groups Corporate and Institutional Clients Corporate and Institutional Clients provides a wide range of solutions to help global and local corporates and financial institutional clients facilitate trade and finance across markets and trade corridors in today s global economy. Corporate and Institutional Clients provides clients with trade finance, cash management, securities services, foreign exchange, risk management, capital raising and corporate finance solutions. 51

54 Commercial and Private Banking Clients Commercial and Private Banking Clients provides a wide range of solutions to help both commercial clients and private banking clients. Retail Clients Retail Clients provides financial services to Business Clients, Priority & International Clients, and Personal & Preferred Clients across the SCPLC franchise. Geographic Markets The Group s network covers Greater China, ASEAN, MENAP, North East Asia, South Asia, Africa, Europe and the Americas. The following geographic analysis is related to the most current audited financial statements for the year ended 31 December During this period the group was organised around the following geographic regions: Hong Kong, Singapore, Other Asia Pacific, Korea, India, Middle East and other South Asia, Africa, and the Americas, the United Kingdom and Europe. Hong Kong Hong Kong is the Group s largest market, for the year ended 31 December 2013, Hong Kong contributed US$3,725 million of operating income and US$1,920 million of profit before tax to the Group. For the year ended 31 December 2012, Hong Kong activities contributed US$3,348 million operating income and US$1,660 million profit before tax to the Group. Singapore Singapore is the Group s second largest market by income and profit before tax. For the year ended 31 December 2013, Singapore contributed US$2,132 million of operating income and US$925 million of profit before tax to the Group. For the year ended 31 December 2012 Singapore contributed US$2,203 million of operating income and US$966 million of profit before tax to the Group. Other Asia Pacific For the year ended 31 December 2013, the Other Asia Pacific region contributed US$3,473 million of operating income and US$1,161 million of profit before tax to the Group. For the year ended 31 December 2012, the Other Asia Pacific region contributed US$3,672 million of operating income and US$1,217 million of profit before tax to the Group. The Group continues to be positioned in a range of growth markets in the Other Asia Pacific region, which includes China, Indonesia, Malaysia and Taiwan. Korea The Group acquired Korea First Bank, a banking group in the Republic of Korea (South Korea) in April 2005 and completed the rebranding as SC First Bank in September In November 2005, SCB s branch business in South Korea was integrated with SC First Bank. In January 2012 we rebranded the bank, dropping the SC First Bank name, and replacing it with Standard Chartered Korea. 52

55 For the year ended 31 December 2013, Korea contributed operating income of US$1,564 million and a loss of US$1,012 million to the Group. The loss includes a goodwill impairment of US$1 billion. For the year ended 31 December 2012, Korea contributed operating income of US$1,852 million and profit before tax of US$514 million to the Group. India For the year ended 31 December 2013, India contributed operating income of US$1,696 million and profit before tax of US$697 million to the Group and is the Group s third largest contributor of income and profits. For the year ended 31 December 2012, India contributed operating income of US$1,585 million and profit before tax of US$676 million to the Group. Middle East and Other South Asia For the year ended 31 December 2013, Middle East and other South Asia contributed operating income of US$2,209 million and profit before tax of US$1,058 million to the Group. For the year ended 31 December 2012, Middle East and other South Asia contributed operating income of US$2,234 million and profit before tax of US$786 million to the Group. The United Arab Emirates represents over 50 per cent of Middle East and Other South Asia income. Africa As at 31 December 2013, the Group has a presence in 15 countries in Africa. For the year ended 31 December 2013, Africa contributed operating income of US$1,751 million and profit before tax of US$619 million to the Group. For the year ended 31 December 2012, Africa contributed operating income of US$1,593 million and profit before tax of US$771 million to the Group. Americas, United Kingdom and Europe In the Americas, United Kingdom and Europe, the Group is focused on supporting our clients cross border business within our footprint of Asia, Africa and the Middle East. For the year ended 31 December 2013, the region contributed operating income of US$2,227 million and operating profit before tax of US$696 million. For the year ended 31 December 2012, the Group s operations in the Americas, United Kingdom and Europe contributed operating income of US$2,296 million and profit before tax of US$261 million to the Group. Subsidiaries As at 31 December 2013, the principal subsidiary undertakings of SCB principally engaged in the business of banking and provision of other financial services, were as follows: Standard Chartered Bank (Hong Kong) Limited, Standard Chartered Bank Korea Limited, Standard Chartered Bank (Singapore) Limited, Standard Chartered Bank Malaysia Berhad, Standard Chartered Bank (Thai) Public Company Limited, Standard Chartered Bank (China) Limited, Standard Chartered Bank (Taiwan) Limited, Standard Chartered Bank (Pakistan) Limited, Standard Chartered Bank Nigeria Limited, Standard Chartered Bank Kenya Limited, and Standard Chartered Private Equity Limited. All the above are directly or indirectly wholly owned subsidiaries of SCB, except Standard Chartered Bank (Thai) Public Company Limited, which is per cent. directly owned by SCB, Standard Chartered Bank (Pakistan) Limited, which is per cent. directly owned by SCB and Standard Chartered Bank Kenya Limited which is 74.3 per cent. indirectly owned by SCB. Standard Chartered Bank (Hong Kong) Limited is 49 per cent. owned by Standard Chartered Holdings Limited, SCB s parent company. 53

56 Directors of SCPLC The directors of SCPLC and their respective principal outside activities, where significant to SCPLC or SCB, are as follows: Sir J W Peace Non-Executive Chairman 1 Chairman of Experian plc and Burberry Group plc P A Sands Group Chief Executive, Director and Chairman of SCB 1 Non-Executive Director of the Board of the Department of Health, and Board Member of the Institute of International Finance and World Economic Forum O P Bhatt Non-Executive Director 1 Non-Executive Director of Hindustan Unilever Limited, Oil and Natural Gas Corporation, Tata Consultancy Services, India, and Tata Steel Limited J S Bindra Group Executive Director, Chief Executive Officer, Asia and Director of SCB 2 S P Bertamini Group Executive Director, Consumer Banking and Director of SCB 3 K L Campbell Non-Executive Director 1 Dr L Cheung Non-Executive Director 1 Non-Executive Director of Fubon Financial Holding Co Limited and Director of Boyu Overseas Services Limited J F T Dundas Non-Executive Director 1 Chairman of Jupiter Fund Management plc Dr Han Seung-soo, KBE Non-Executive Director 1 Non-Executive Director of the Seoul Semiconductor Inc C M Hodgson Non-Executive Director 1 Non-Executive Director of Ladbrokes PLC and Director of Capgemini UK plc S J Lowth Non-Executive Director 1 Director of AstraZeneca PLC N Kheraj Non-Executive Director 1 R H P Markham Non-Executive Director 1 Non-Executive Director of Legal and General Group plc, AstraZeneca PLC and United Parcel Service, Inc. R Markland Non-Executive Director 1 Non-Executive Director of The Sage Group plc and Arcadis NV R H Meddings Group Finance Director and Director of SCB 1 Non-Executive Director of 3i Group plc J G H Paynter Non-Executive Director 1 Non-Executive Director of Standard Life plc A M G Rees Group Executive Director, Wholesale Banking and Director of SCB 1 54

57 P D Skinner Non-Executive Director 1 Non-Executive Director of the Tetra Laval International SA, L Air Liquide SA, and Non-Executive Director of the Public Interest Body of PricewaterhouseCoopers LLP O H J Stocken Non-Executive Director 1 Chairman of Stanhope Group Holdings Limited and Director of Hoyle Barn Limited V Shankar Group Executive Director, CEO Europe, Middle East, Africa, Americas and Director of SCB 4 Non-Executive Director of Majid Al Futtaim Holding LLC L T Thunell Non-Executive Director 1 Director of Kosmos Energy and Non-Executive Director and Vice Chairman of Sithe Global LLP On 9 January 2014 the Group announced the appointment of A M G Rees as Deputy Group Chief Executive, and that S P Bertamini and R H Meddings would be stepping down from the SCPLC and SCB Board s in March 2014 and June 2014 respectively. Notes: 1. The business address should be regarded for the purposes of this Prospectus as: 1 Basinghall Avenue London EC2V 5DD 2. The business address should be regarded for the purposes of this Prospectus as: Standard Chartered Bank (Hong Kong) Limited 32nd Floor, 4-4A Des Voeux Road Central, Hong Kong 3. The business address should be regarded for the purposes of this Prospectus as: 8 Marina Boulevard Marina Bay Financial Centre Tower 1 Level 29 Singapore 4. The business address should be regarded for the purposes of this Prospectus as: Standard Chartered Bank, Dubai Branch DIFC Level 7, DIFC Bur Dubai Dubai 999 There are no existing or potential conflicts of interest between any duties of the directors named above owed to SCPLC and/or their private interests and other duties. Directors of SCB As at 1 March 2014, the directors of SCB and their respective principal outside activities, where significant to SCB, are as follows: P A Sands Chairman, and Group Chief Executive of SCPLC Non-Executive Director of the Board of the Department of Health and Board Member of the Institute of International Finance and World Economic Forum J S Bindra Director, Group Executive Director of SCPLC and Chief Executive Officer, Asia S P Bertamini Director, Group Executive Director of SCPLC, and Chief Executive, Consumer Banking T J Clarke Director Non-Executive Director of British Sky Broadcasting Group plc 55

58 R F Goulding Director R H Meddings Director, and Group Finance Director of SCPLC Non-Executive Director of 3i Group plc A M G Rees Director, Group Executive Director of SCPLC and Chief Executive, Wholesale Banking V Shankar Director, Group Executive Director of SCPLC and CEO Europe, Middle East, Africa, Americas Non-Executive Director of Majid Al Futtaim Holding LLC J P Verplancke Director On 9 January 2014 the Group announced the appointment of A M G Rees as Deputy Group Chief Executive, and that S P Bertamini and R H Meddings would be stepping down from the SCPLC and SCB Board s in March 2014 and June 2014 respectively. 56

59 STATUTORY AND GENERAL INFORMATION ABOUT US NO MATERIAL ADVERSE CHANGE Save for any that has been disclosed in this base listing document, there has been no material adverse change in our financial or trading position since the date of our most recently published audited financial statements that would have a material adverse effect on our ability to perform our obligations in the context of any issue of structured products. LITIGATION Save for any that has been disclosed in this base listing document (including the paragraphs headed Regulatory changes and compliance in the section headed Financial Information Relating to SCB as set out in Annex 5 to this base listing document), we are not aware, to the best of our knowledge and belief, of any litigation or claims of material importance in the context of any issue of structured products pending or threatened against SCB Group. FINANCIAL INFORMATION ABOUT THE ISSUER SCB publishes its directors report and the audited financial statements of SCB Group and SCB following the end of each of its financial year. Its financial year end is 31 December. As at the date of this document, KPMG Audit Plc, our independent accountants and auditors, have given and have not withdrawn their written consent to the inclusion of their report dated 5 March 2014 (which relates to our financial statements for the year ended 31 December 2013) in this base listing document in the form and context in which they are included. Their report was not prepared for the purposes of this base listing document. KPMG Audit Plc do not have any shareholding in us or any of our subsidiaries nor do they have the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for our securities or securities of any of our subsidiaries. OUR PROCESS AGENT Standard Chartered Bank (Hong Kong) Limited of 32/F, 4-4A Des Voeux Road, Central, Hong Kong has been authorised to accept, on our behalf, service of process and any other notices required to be served on us in Hong Kong. 57

60 ANNEX 1 PART A TERMS AND CONDITIONS OF CASH-SETTLED STOCK WARRANTS These master terms and conditions will, together with the supplemental provisions contained in the relevant supplemental listing document and subject to completion and amendment, be endorsed on the back of the relevant global certificate. The applicable supplemental listing document in relation to the issue of any series of Warrants may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these master terms and conditions, replace or modify these master terms and conditions for the purpose of such series of Warrants. Capitalised terms used in these master terms and conditions and not otherwise defined therein shall have the meaning given to them in the relevant supplemental listing document. 1 Form; Status; Transfer and Title (A) The Warrants (which expression shall, unless the context otherwise requires, include any further warrants issued pursuant to Condition 13) relating to the Shares of the Company are issued in registered form subject to and with the benefit of the instrument dated 25 June 2010 (the Instrument ) made by Standard Chartered Bank (the Issuer ). A copy of the Instrument is available for inspection at the offices of Standard Chartered Bank (Hong Kong) Limited (the Sponsor ) at 15th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong or such other place as notified pursuant to Condition 10 from time to time. The Warrantholders (as hereinafter defined) are entitled to the benefit of, are bound by and are deemed to have notice of, all the provisions of the Instrument. (B) The settlement obligations of the Issuer in respect of the Warrants represent general unsecured contractual obligations of the Issuer and of no other person which rank, and will rank, equally among themselves and pari passu with all other present and future unsecured and unsubordinated contractual obligations of the Issuer, except for obligations accorded preference by mandatory provisions of applicable law. Warrants represent general contractual obligations of the Issuer, and are not, nor is it the intention (expressed, implicit or otherwise) of the Issuer to create by the issue of Warrants, deposit liabilities of the Issuer or a debt obligation of any kind. (C) (D) (E) (F) Transfers of Warrants may be effected only in Board Lots or integral multiples thereof in the Central Clearing and Settlement System ( CCASS ) in accordance with the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time. Each person who is for the time being shown in the register kept by or on behalf of the Issuer outside of Hong Kong as the holder shall be treated by the Issuer as the absolute owner and holder of the Warrants. The expression Warrantholder shall be construed accordingly. Trading in Warrants on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) shall be suspended prior to the Expiry Date in accordance with the requirements of the Stock Exchange. The term Warrants refers to the Warrants set out in the relevant Supplemental Listing Document. 58

61 2 Warrant Rights and Exercise Expenses (A) (B) Every Board Lot entitles the Warrantholder, upon compliance with Condition 4, to payment of the Cash Settlement Amount (as defined in Condition 4(D)), if any, minus the determined Exercise Expenses (as defined in Condition 2(B)). If the Cash Settlement Amount is equal to or less than the determined Exercise Expenses, no amount is payable by the Issuer. The Warrantholder will be required to pay all charges which are incurred in respect of the exercise of the Warrants (the Exercise Expenses ). To effect such payment, an amount equivalent to the Exercise Expenses will be deducted by the Issuer from the Cash Settlement Amount in accordance with Condition 4(B). 3 Automatic Exercise (A) (B) (C) Any Warrant in respect of which the Cash Settlement Amount would be payable by the Issuer if exercised on the Expiry Date shall be deemed to be automatically exercised on the Expiry Date (the Automatic Exercise ). Any Warrant which has not been automatically exercised in accordance with Condition 3(A) shall expire immediately without value thereafter and all rights of the Warrantholder and obligations of the Issuer with respect to such Warrant shall cease. In these terms and conditions, Business Day means a day (excluding Saturdays) on which the Stock Exchange is scheduled to open for dealings in Hong Kong and banks are open for business in Hong Kong. 4 Exercise of Warrants (A) Warrants may only be exercised in Board Lots or integral multiples thereof. (B) An irrevocable authorisation is deemed to be given to the Issuer to deduct any determined Exercise Expenses from the Cash Settlement Amount and an undertaking to pay any Exercise Expenses not deducted from the Cash Settlement Amount. Any Exercise Expenses which have not been determined by the Issuer on the Expiry Date shall be notified as soon as practicable after determination thereof by the Issuer to the Warrantholder and shall be paid by the Warrantholder forthwith in immediately available funds no later than 3 Business Days after the Warrantholder receives notice of any unpaid Exercise Expenses. (C) (D) Following the Expiry Date the Global Certificate will be cancelled. Subject to the Automatic Exercise in accordance with Condition 3(A), the Issuer will as soon as practicable and not later than the Settlement Date in accordance with these terms and conditions procure payment of the aggregate Cash Settlement Amount minus the determined Exercise Expenses for all Warrants deemed exercised, electronically through CCASS by crediting the relevant bank account of the Warrantholder as appearing in the register kept by or on behalf of the Issuer. 59

62 Subject to adjustment as provided in Condition 6, Cash Settlement Amount per Board Lot means an amount in the Settlement Currency calculated by the Issuer in accordance with the following formula: In the case of a series of Call Warrants: Cash Settlement Amount per Board Lot = In the case of a series of Put Warrants: Cash Settlement Amount per Board Lot = Entitlement x (Average Price Exercise Price) x one Board Lot Number of Warrant(s) per Entitlement Entitlement x (Exercise Price Average Price) x one Board Lot Number of Warrant(s) per Entitlement Average Price shall be the arithmetic mean of the closing prices of one Share, as derived from the daily quotation sheet of the Stock Exchange, subject to any adjustments to such closing prices as may be necessary to reflect any capitalisation, rights issue, distribution or the like in respect of each Valuation Date. CCASS Settlement Day has the meaning ascribed to the term Settlement Day in the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time, subject to such modification and amendment prescribed by Hong Kong Securities Clearing Company Limited from time to time. Entitlement means the number of Shares to which the Warrants relate, as specified in the relevant Supplemental Listing Document. Market Disruption Event means: (1) the occurrence or existence on any Valuation Date during the one-half hour period that ends at the close of trading of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Stock Exchange or otherwise) on the Stock Exchange in (i) the Shares or (ii) any options or futures contracts relating to the Shares if, in any such case, such suspension or limitation is, in the determination of the Issuer, material; (2) the issuance of the tropical cyclone warning signal number 8 or above or the issuance of a BLACK rainstorm signal on any day which either (i) results in the Stock Exchange being closed for trading for the entire day; or (ii) results in the Stock Exchange being closed prior to its regular time for close of trading for the relevant day (for the avoidance of doubt, in the case when the Stock Exchange is scheduled to open for the morning trading session only, closed prior to its regular time for close of trading for the morning session), PROVIDED THAT there shall be no Market Disruption Event solely by reason of the Stock Exchange opening for trading later than its regular time for opening of trading on any day as a result of the tropical cyclone warning signal number 8 or above or the BLACK rainstorm signal having been issued; or (3) a limitation or closure of the Stock Exchange due to any unforeseen circumstances. Settlement Currency means the currency specified in the relevant Supplemental Listing Document. Settlement Date means the third CCASS Settlement Day after the later of: (i) the Expiry Date; and (ii) the day on which the Average Price is determined in accordance with these terms and conditions. 60

63 Valuation Date means each of the five Business Days immediately preceding the Expiry Date. If the Issuer determines, in its sole and absolute discretion, that a Market Disruption Event has occurred on any Valuation Date, then that Valuation Date shall be postponed until the first succeeding Business Day on which there is no Market Disruption Event irrespective of whether that postponed Valuation Date would fall on a Business Day that already is or is deemed to be a Valuation Date. For the avoidance of doubt, in the event that a Market Disruption Event has occurred and a Valuation Date is postponed as aforesaid, the closing price of the Shares on the first succeeding Business Day will be used more than once in determining the Average Price, so that in no event shall there be less than five closing prices used to determine the Average Price. If the postponement of a Valuation Date as aforesaid would result in the Valuation Date falling on or after the Expiry Date, then: (i) (ii) the Business Day immediately preceding the Expiry Date (the Last Valuation Date ) shall be deemed to be the Valuation Date notwithstanding the Market Disruption Event; and the Issuer shall determine the closing price of the Shares on the basis of its good faith estimate of the price that would have prevailed on the Last Valuation Date but for the Market Disruption Event. Any payment made pursuant to this Condition 4(D) shall be delivered at the risk and expense of the Warrantholder to the Warrantholder, or such bank, broker or agent in Hong Kong (if any) as is recorded on the register. (E) (F) If as a result of an event beyond the control of the Issuer, it is not possible for the Issuer to procure payment electronically through CCASS by crediting the relevant bank account of the Warrantholder on the original Settlement Date ( Settlement Disruption Event ), the Issuer shall use its reasonable endeavours to procure payment electronically through CCASS by crediting the relevant bank account of the Warrantholder as soon as reasonably practicable after the original Settlement Date. The Issuer will not be liable to the Warrantholder for any interest in respect of the amount due or any loss or damage that such Warrantholder may suffer as a result of the existence of a Settlement Disruption Event, nor shall the Issuer be liable under any circumstances for any acts or defaults of CCASS in relation to the performance of its duties in relation to the Warrants. These terms and conditions shall not be construed so as to give rise to any relationship of agency or trust between the Issuer or its agent (including the Sponsor) or nominee and the Warrantholder and neither the Stock Exchange, the Issuer nor its agent (including the Sponsor) or nominee shall owe any duty of a fiduciary nature to the Warrantholder. None of the Stock Exchange or the Issuer shall have any responsibility for any errors or omissions in the calculation and dissemination of any variables published by a third party and used in any calculation or determination made pursuant to these terms and conditions or in the calculation of the Cash Settlement Amount arising from such errors or omissions. The Issuer s obligations to pay the Cash Settlement Amount shall be discharged by payment in accordance with Condition 4(D) above. 61

64 5 Sponsor (A) (B) The Sponsor will not assume any obligation or duty to or any relationship or agency or trust for the Warrantholders. The Issuer reserves the right, subject to the appointment of a successor, at any time to vary or terminate the appointment of the Sponsor and to appoint another sponsor provided that it will at all times maintain a sponsor in Hong Kong for so long as the Warrants are listed on the Stock Exchange. Notice of any such termination or appointment of the Sponsor will be given to the holder in accordance with Condition Adjustments Adjustments may be made by the Issuer to the terms of the Warrants (including, but not limited to, the Exercise Price and the Entitlement) on the basis of the following provisions: (A) (i) If and whenever the Company shall, by way of Rights (as defined below), offer new Shares for subscription at a fixed subscription price to the holders of existing Shares pro rata to existing holdings (a Rights Offer ), the Exercise Price and the Entitlement shall be adjusted on the Business Day on which the trading in the Shares of the Company becomes ex-entitlement in accordance with the following formulae: The Entitlement will be adjusted to: Adjusted Entitlement = Adjustment Factor x E The Exercise Price will be adjusted to: 1 Adjusted Exercise Price = Adjustment Factor Where: 1+M Adjustment Factor = 1 + (R/S) x M E: Existing Entitlement immediately prior to the Rights Offer xx X: Existing Exercise Price immediately prior to the Rights Offer S: Cum-Rights Share price, being the closing price of an existing Share, as derived from the daily quotation sheet of the Stock Exchange on the last Business Day on which the Shares are traded on a cum-rights basis R: Subscription price per new Share specified in the Rights Offer plus an amount equal to any dividends or other benefits foregone to exercise the Right M: Number of new Shares per existing Share (whether a whole or a fraction) each holder of an existing Share is entitled to subscribe or have For the purposes of these terms and conditions, Rights means the right(s) attached to each existing Share or needed to acquire one new Share (as the case may be) which are given to a holder of existing Shares to subscribe at a fixed subscription price for new Shares pursuant to the Rights Offer (whether by the exercise of one Right, a part of a Right or an aggregate number of Rights). 62

65 (ii) The Adjusted Exercise Price (which shall be rounded to the nearest 0.001) shall take effect on the same day that the Entitlement is adjusted. (B) (i) If and whenever the Company shall make an issue of Shares credited as fully paid to holders of Shares generally by way of capitalisation of profits or reserves (other than pursuant to a scrip dividend or similar scheme for the time being operated by the Company or otherwise in lieu of a cash dividend) (and without any payment or other consideration being made or given by such holders) (a Bonus Issue ), the Entitlement and the Exercise Price will be adjusted, subject to Condition 6(B)(iii), on the Business Day on which the trading in the Shares of the Company becomes ex-entitlement in accordance with the following formulae: The Entitlement will be adjusted to: Adjusted Entitlement = Adjustment Factor x E The Exercise Price will be adjusted to: Where: Adjusted Exercise Price = 1 Adjustment Factor xx Adjustment Factor =1+M E: Existing Entitlement immediately prior to the Bonus Issue X: Existing Exercise Price immediately prior to the Bonus Issue M: Number of additional Shares (whether a whole or a fraction) received by a holder of existing Shares for each Share held prior to the Bonus Issue (ii) The Adjusted Exercise Price (which shall be rounded to the nearest 0.001) shall take effect on the same day that the Entitlement is adjusted. (iii) For the purposes of Conditions 6(A) and 6(B), the Issuer may determine that no adjustment will be made if the adjustment to the Entitlement is 1 per cent. or less of the Entitlement immediately prior to the adjustment, all as determined by the Issuer. (C) (D) If and whenever the Company shall subdivide its outstanding share capital into a greater number of shares or consolidate its outstanding share capital into a smaller number of shares, the Entitlement shall be increased and the Exercise Price shall be decreased (in the case of a subdivision) or the Entitlement shall be decreased and the Exercise Price shall be increased (in the case of a consolidation) accordingly, in each case on the day on which the relevant subdivision or consolidation shall have taken effect. The Adjusted Exercise Price shall be rounded to the nearest If it is announced that the Company is to or may merge or consolidate with or into any other corporation (including becoming, by agreement or otherwise, a subsidiary of or controlled by any person or corporation) (except where the Company is the surviving corporation in a merger or consolidation) or that it is to or may sell or transfer all or substantially all of its assets, the rights attaching to the Warrants may in the sole and absolute discretion of the Issuer be amended no later than the Business Day preceding the consummation of such merger, consolidation, sale or transfer (each a Restructuring Event ) (as determined by the Issuer in its sole and absolute discretion). 63

66 The rights attaching to the Warrants after the adjustment shall, after such Restructuring Event, relate to the number of shares of the corporation(s) resulting from or surviving such Restructuring Event or other securities (the Substituted Securities ) and/or cash offered in substitution for the affected Shares, as the case may be, to which the holder of such number of Shares to which the Warrants related immediately before such Restructuring Event would have been entitled upon such Restructuring Event. Thereafter the provisions hereof shall apply to such Substituted Securities, provided that any Substituted Securities may, in the sole and absolute discretion of the Issuer, be deemed to be replaced by an amount in the relevant currency equal to the market value or, if no market value is available, fair value, of such Substituted Securities in each case as determined by the Issuer as soon as practicable after such Restructuring Event is effected. For the avoidance of doubt, any remaining Shares shall not be affected by this paragraph (D) and, where cash is offered in substitution for Shares or is deemed to replace Substituted Securities as described above, references in these terms and conditions to the Shares shall include any such cash. (E) Generally, no adjustment will be made for an ordinary cash dividend (whether or not it is offered with a scrip alternative). For any other forms of cash distribution (each a Cash Distribution ) announced by the Company, such as a cash bonus, special dividend or extraordinary dividend, no adjustment will be made unless the value of the Cash Distribution accounts for 2 per cent. or more of the Share s closing price on the day of announcement by the Company. If and whenever the Company shall make a Cash Distribution credited as fully paid to the holders of Shares generally, the Exercise Price and the Entitlement shall be adjusted to take effect on the Business Day on which trading in the Shares becomes ex-entitlement (each a Dividend Adjustment Date ) in accordance with the following formulae: The Entitlement will be adjusted to: The Exercise Price will be adjusted to: Adjusted Entitlement = Adjustment Factor x E Adjusted Exercise Price (which shall be rounded to the nearest 0.001) = 1 Adjustment Factor xx Where: S OD Adjustment Factor = S OD CD E: Existing Entitlement immediately prior to the relevant Cash Distribution X: Existing Exercise Price immediately prior to the relevant Cash Distribution S: The closing price of a Share, as derived from the daily quotation sheet of the Stock Exchange on the Business Day immediately prior to the Dividend Adjustment Date OD: Amount of ordinary cash dividend per Share (applicable only if the date on which trading in the Shares becomes ex-entitlement in respect of the ordinary cash dividend is the same as the Dividend Adjustment Date) CD: Amount of the relevant Cash Distribution per Share 64

67 (F) (G) Without prejudice to and notwithstanding any prior adjustment(s) made pursuant to the applicable terms and conditions, the Issuer may (but shall not be obliged to) make such other adjustments to the terms and conditions of the Warrants as appropriate where any event (including the events as contemplated in the applicable terms and conditions) occurs and irrespective of, in substitution for, or in addition to the provisions contemplated in applicable terms and conditions, provided that such adjustment is: (a) not materially prejudicial to the interests of the Warrantholders generally (without considering the circumstances of any individual Warrantholder or the tax or other consequences of such adjustment in any particular jurisdiction); or (b) determined by the Issuer in good faith to be appropriate and commercially reasonable. The Issuer shall determine any adjustment or amendment and its determination shall be conclusive and binding on the Warrantholders save in the case of manifest error. Notice of any adjustments or amendments shall be given to the Warrantholders in accordance with Condition 10 as soon as practicable after the determination thereof. 7 Purchase by the Issuer The Issuer and any of its affiliates may purchase Warrants at any time on or after the date of their issue and any Warrants which are so purchased may be surrendered for cancellation or offered from time to time in one or more transactions in the over-the-counter market or otherwise at prevailing market prices or in negotiated transactions, at the sole and absolute discretion of the Issuer or any such affiliate, as the case may be. 8 Global Certificate A global certificate (the Global Certificate ) representing the Warrants will be deposited within CCASS and registered in the name of HKSCC Nominees Limited (or its successors) or another nominee of Hong Kong Securities Clearing Company Limited. The Global Certificate will not be exchangeable for definitive certificates. 9 Meeting of Warrantholders; Modification (A) Meetings of Warrantholders. Notices for convening meetings to consider any matter affecting the Warrantholders interests will be given to the Warrantholders in accordance with the provisions of Condition 10. Every question submitted to a meeting of the Warrantholders shall be decided by poll. A meeting may be convened by the Issuer or by the Warrantholders holding not less than 10 per cent. of the Warrants for the time being remaining unexercised. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons (including any nominee appointed by the Warrantholders) holding or representing not less than 25 per cent. of the Warrants for the time being remaining unexercised, or at any adjourned meeting two or more persons (including any nominee appointed by the Warrantholders) being or representing Warrantholders whatever the number of Warrants so held or represented. Extraordinary Resolution means a resolution passed at a duly convened meeting by not less than three-quarters of the votes cast by such Warrantholders as, being entitled to do so, vote in person or by proxy. An Extraordinary Resolution passed at any meeting of the Warrantholders shall be binding on all the holders of the Warrants, whether or not they are present at the meeting. 65

68 Resolutions can be passed in writing without a meeting of the Warrantholders being held if passed unanimously. Where the Warrantholder is a clearing house recognised by the laws of Hong Kong or its nominee(s), it may authorise such person or person(s) as it thinks fit to act as its representative(s) or proxy(ies) at any Warrantholders meeting provided that, if more than one person is so authorised, the authorisation or proxy form must specify the number of Warrants in respect of which each such person is so authorised. Each person so authorised will be entitled to exercise the same powers and right, including the right to vote on a show of hands, on behalf of the recognised clearing house or its nominee(s) as that clearing house or its nominee(s) as if he was an individual Warrantholder. (B) Modification. The Issuer may, without the consent of the Warrantholders, effect any modification of the terms and conditions of the Warrants or the Instrument which, in the opinion of the Issuer, is (i) not materially prejudicial to the interests of the Warrantholders generally (without considering the circumstances of any individual Warrantholder or the tax or other consequences of such modification in any particular jurisdiction); (ii) of a formal, minor or technical nature; (iii) made to correct a manifest error; or (iv) necessary in order to comply with mandatory provisions of the laws or regulations of Hong Kong. Any such modification shall be binding on the Warrantholders and shall be notified to them by the Issuer as soon as practicable thereafter in accordance with Condition Notices All notices in English and Chinese to the Warrantholders will be validly given if published on the website of the Hong Kong Exchanges and Clearing Limited. In such circumstances, the Issuer shall not be required to dispatch copies of the notice to the Warrantholders. 11 Liquidation In the event of a liquidation or dissolution or winding up of the Company or the appointment of a liquidator, receiver or administrator or analogous person under applicable law in respect of the whole or substantially the whole of the undertaking, property or assets of the Company, all unexercised Warrants will lapse and shall cease to be valid for any purpose, in the case of a voluntary liquidation, on the effective date of the resolution and, in the case of an involuntary liquidation or dissolution, on the date of the relevant court order or, in the case of the appointment of a liquidator or receiver or administrator or analogous person under applicable law in respect of the whole or substantially the whole of the undertaking, property or assets, on the date when such appointment is effective but subject (in any such case) to any contrary mandatory requirement of law. 12 Delisting of Company (A) (B) If at any time the Shares cease to be listed on the Stock Exchange, the Issuer shall give effect to these terms and conditions in such manner and make such adjustments to the rights attaching to the Warrants as it shall, in its sole and absolute discretion, consider appropriate to ensure, so far as it is reasonably able to do so, that the interests of the Warrantholders generally are not materially prejudiced as a consequence of such delisting (without considering the individual circumstances of the Warrantholder or the tax or other consequences that may result in any particular jurisdiction). Without prejudice to the generality of Condition 12(A), where the Shares are or, upon the delisting, become, listed on any other stock exchange, these terms and conditions may, in the sole and absolute discretion of the Issuer, be amended to the extent necessary to 66

69 allow for the substitution of that other stock exchange in place of the Stock Exchange and the Issuer may, without the consent of the Warrantholders, make such adjustments to the entitlements of the Warrantholders on exercise (including, if appropriate, by converting foreign currency amounts at prevailing market rates into amounts in the relevant currency) as it shall consider appropriate in the circumstances. (C) Any adjustment, amendment or determination made by the Issuer pursuant to this Condition 12 shall be conclusive and binding on the Warrantholders save in the case of manifest error. Notice of any adjustments or amendments shall be given to the Warrantholders in accordance with Condition 10 as soon as practicable after they are determined. 13 Further Issues The Issuer shall be at liberty from time to time, without the consent of the Warrantholders, to create and issue further warrants, upon such terms as to issue price, commencement of the exercise period and otherwise as the Issuer may determine so as to form a single series with the Warrants. 14 Illegality or Impracticability The Issuer is entitled to terminate the Warrants if it determines in good faith and in a commercially reasonable manner that, for reasons beyond its control, it has become or it will become illegal or impracticable: (a) for it to perform its obligations under the Warrants, in whole or in part as a result of: (i) (ii) the adoption of, or any change in, any relevant law or regulation (including any tax law); or the promulgation of, or any change in, the interpretation by any court, tribunal, governmental, administrative, legislative, regulatory or judicial authority or power with competent jurisdiction of any relevant law or regulation (including any tax law), (each of (i) and (ii), a Change in Law Event ); or (b) for it or any of its affiliates to maintain the Issuer s hedging arrangements with respect to the Warrants due to a Change in Law Event. Upon the occurrence of a Change in Law Event, the Issuer will, if and to the extent permitted by the applicable law or regulation, pay to each Warrantholder a cash amount that the Issuer determines in good faith and in a commercially reasonable manner to be the fair market value in respect of each Warrant held by such Warrantholder immediately prior to such termination (ignoring such illegality or impracticability) less the cost to the Issuer of unwinding any related hedging arrangement as determined by the Issuer in its sole and absolute discretion. Payment will be made in such manner as shall be notified to the Warrantholders in accordance with Condition Good Faith and Commercially Reasonable Manner Any exercise of discretion by the Issuer under these terms and conditions will be made in good faith and in a commercially reasonable manner. 67

70 16 Governing Law The Warrants and the Instrument will be governed by and construed in accordance with the laws of the Hong Kong Special Administrative Region of the People s Republic of China ( Hong Kong ). The Issuer and the Warrantholder (by its acquisition of the Warrants) shall be deemed to have submitted for all purposes in connection with the Warrants and the Instrument to the non-exclusive jurisdiction of the courts of Hong Kong. 17 Language In the event of any inconsistency between the English version and Chinese translation of these terms and conditions, the English version shall govern and prevail. Sponsor Standard Chartered Bank (Hong Kong) Limited 32/F, 4-4A Des Voeux Road Central Hong Kong 68

71 PART B TERMS AND CONDITIONS OF CASH-SETTLED INDEX WARRANTS These master terms and conditions will, together with the supplemental provisions contained in the relevant supplemental listing document and subject to completion and amendment, be endorsed on the back of the relevant global certificate. The applicable supplemental listing document in relation to the issue of any series of Warrants may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these master terms and conditions, replace or modify these master terms and conditions for the purpose of such series of Warrants. Capitalised terms used in these master terms and conditions and not otherwise defined therein shall have the meaning given to them in the relevant supplemental listing document. 1 Form; Status; Transfer and Title (A) The Warrants (which expression shall, unless the context otherwise requires, include any further warrants issued pursuant to Condition 11) relating to the Index as published by the compiler of the Index (the Index Compiler ) are issued in registered form subject to and with the benefit of the instrument dated 25 June 2010 (the Instrument ) made by Standard Chartered Bank (the Issuer ). A copy of the Instrument is available for inspection at the offices of Standard Chartered Bank (Hong Kong) Limited (the Sponsor ) at 15th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong or such other place as notified pursuant to Condition 10 from time to time. The Warrantholders (as hereinafter defined) are entitled to the benefit of, are bound by and are deemed to have notice of, all the provisions of the Instrument. (B) The settlement obligations of the Issuer in respect of the Warrants represent general unsecured contractual obligations of the Issuer and of no other person which rank, and will rank, equally among themselves and pari passu with all other present and future unsecured and unsubordinated contractual obligations of the Issuer, except for obligations accorded preference by mandatory provisions of applicable law. Warrants represent general contractual obligations of the Issuer, and are not, nor is it the intention (expressed, implicit or otherwise) of the Issuer to create by the issue of Warrants, deposit liabilities of the Issuer or a debt obligation of any kind. (C) (D) (E) (F) Transfers of Warrants may be effected only in Board Lots or integral multiples thereof in the Central Clearing and Settlement System ( CCASS ) in accordance with the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time. Each person who is for the time being shown in the register kept by or on behalf of the Issuer outside of Hong Kong as the holder shall be treated by the Issuer as the absolute owner and holder of the Warrants. The expression Warrantholder shall be construed accordingly. Trading in Warrants on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) shall be suspended prior to the Expiry Date in accordance with the requirements of the Stock Exchange. The term Warrants refers to the Warrants set out in the relevant Supplemental Listing Document. 69

72 2 Warrant Rights and Exercise Expenses (A) (B) Every Board Lot entitles the Warrantholder, upon compliance with Condition 4, to payment of the Cash Settlement Amount (as defined in Condition 4(D)), if any, minus the determined Exercise Expenses (as defined in Condition 2(B)). If the Cash Settlement Amount is equal to or less than the determined Exercise Expenses, no amount is payable by the Issuer. The Warrantholder will be required to pay all charges which are incurred in respect of the exercise of the Warrants (the Exercise Expenses ). To effect such payments, an amount equivalent to the Exercise Expenses will be deducted by the Issuer from the Cash Settlement Amount in accordance with Condition 4(B). 3 Automatic Exercise (A) (B) (C) Any Warrant in respect of which the Cash Settlement Amount would be payable by the Issuer if exercised on the Expiry Date shall be deemed to be automatically exercised on the Expiry Date (the Automatic Exercise ). Any Warrant which has not been automatically exercised in accordance with Condition 3(A) shall expire immediately without value thereafter and all rights of the Warrantholder and obligations of the Issuer with respect to such Warrant shall cease. In these terms and conditions, Business Day means a day (excluding Saturdays) on which the Stock Exchange is scheduled to open for dealings in Hong Kong and banks are open for business in Hong Kong. 4 Exercise of Warrants (A) Warrants may only be exercised in Board Lots or integral multiples thereof. (B) An irrevocable authorisation is deemed to be given to the Issuer to deduct any determined Exercise Expenses from the Cash Settlement Amount and an undertaking to pay any Exercise Expenses not deducted from the Cash Settlement Amount. Any Exercise Expenses which have not been determined by the Issuer on the Expiry Date shall be notified as soon as practicable after determination thereof by the Issuer to the Warrantholder and shall be paid by the Warrantholder forthwith in immediately available funds no later than 3 Business Days after the Warrantholder receives notice of any unpaid Exercise Expenses. (C) (D) Following the Expiry Date the Global Certificate will be cancelled. Subject to the Automatic Exercise in accordance with Condition 3(A), the Issuer will as soon as practicable and not later than the Settlement Date in accordance with these terms and conditions procure payment of the aggregate Cash Settlement Amount minus the determined Exercise Expenses for all Warrants deemed exercised, electronically through CCASS by crediting the relevant bank account of the Warrantholder as appearing in the register kept by or on behalf of the Issuer. Subject to adjustment as provided in Condition 6, Cash Settlement Amount per Board Lot means an amount calculated by the Issuer in accordance with the following formula (and if applicable, either (i) converted into the Settlement Currency at the Exchange Rate or, as the case may be, (ii) converted into the Interim Currency at the First Exchange Rate and then (if applicable) converted into the Settlement Currency at the Second Exchange Rate): 70

73 In respect of Index Call Warrants: Cash Settlement Amount per Board Lot = In respect of Index Put Warrants: Cash Settlement Amount per Board Lot = (Closing Level Strike Level) x one Board Lot x Index Currency Amount Divisor (Strike Level Closing Level) x one Board Lot x Index Currency Amount Divisor CCASS Settlement Day has the meaning ascribed to the term Settlement Day in the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time, subject to such modification and amendment prescribed by Hong Kong Securities Clearing Company Limited from time to time. Market Disruption Event means: (a) the occurrence or existence, on the Valuation Date during the one-half hour period that ends at the close of trading on the Index Exchange, of any of: (i) (ii) the suspension of or material limitation on the trading of a material number of constituent securities that comprise the Index; the suspension of or material limitation on the trading of options or futures contracts relating to the Index on any exchange on which such contracts are traded; or (iii) the imposition of any exchange controls in respect of any currencies involved in determining the Cash Settlement Amount. For the purposes of this paragraph (a), (X) the limitation of the number of hours or days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of any relevant exchange, and (Y) a limitation on trading imposed by reason of the movements in price exceeding the levels permitted by any relevant exchange will constitute a Market Disruption Event; (b) (where the Index Exchange is the Stock Exchange) the issuance of the tropical cyclone warning signal number 8 or above or the issuance of a BLACK rainstorm signal on any day which either (i) results in the Stock Exchange being closed for trading for an entire day; or (ii) results in the Stock Exchange being closed prior to its regular time for close of trading for the relevant day (for the avoidance of doubt, in the case when the Stock Exchange is scheduled to open for the morning trading session only, closed prior to its regular time for close of trading for the morning session), PROVIDED THAT there shall be no Market Disruption Event solely by reason of the Stock Exchange opening for trading later than its regular time for opening of trading on any day as a result of the tropical cyclone warning signal number 8 or above or the BLACK rainstorm signal having been issued; (c) a limitation or closure of the Index Exchange due to any other unforeseen circumstances; or 71

74 (d) any circumstances beyond the control of the Issuer in which the Closing Level or, if applicable, the Exchange Rate, the First Exchange Rate or the Second Exchange Rate (as the case may be) cannot be determined by the Issuer in the manner set out in these terms and conditions or in such other manner as the Issuer considers appropriate at such time after taking into account all the relevant circumstances; Settlement Currency means the currency specified in the relevant Supplemental Listing Document. Settlement Date means the third CCASS Settlement Day after the later of: (i) the Expiry Date; and (ii) the day on which the Closing Level is determined in accordance with these terms and conditions. Valuation Date means the date specified as such in the relevant Supplemental Listing Document, provided that if the Issuer determines, in its sole and absolute discretion, that on the Valuation Date a Market Disruption Event has occurred, then the Issuer will determine the Closing Level on the basis of its good faith estimate of the Closing Level that would have prevailed on that day but for the occurrence of the Market Disruption Event provided that the Issuer may, if applicable, but shall not be obliged to, determine such Closing Level by having regard to the manner in which futures contracts relating to the Index are calculated. Any payment made pursuant to this Condition 4(D) shall be delivered at the risk and expense of the Warrantholder to the Warrantholder, or such bank, broker or agent in Hong Kong (if any) as is recorded on the register. (E) (F) If as a result of an event beyond the control of the Issuer, it is not possible for the Issuer to procure payment electronically through CCASS by crediting the relevant bank account of the Warrantholder on the original Settlement Date ( Settlement Disruption Event ), the Issuer shall use its reasonable endeavours to procure payment electronically through CCASS by crediting the relevant bank account of the Warrantholder as soon as reasonably practicable after the original Settlement Date. The Issuer will not be liable to the Warrantholder for any interest in respect of the amount due or any loss or damage that such Warrantholder may suffer as a result of the existence of a Settlement Disruption Event, nor shall the Issuer be liable under any circumstances for any acts or defaults of CCASS in relation to the performance of its duties in relation to the Warrants. These terms and conditions shall not be construed so as to give rise to any relationship of agency or trust between the Issuer or its agent (including the Sponsor) or nominee and the Warrantholder and neither the Stock Exchange, the Issuer nor its agent (including the Sponsor) or nominee shall owe any duty of a fiduciary nature to the Warrantholder. 5 Sponsor None of the Stock Exchange or the Issuer shall have any responsibility for any errors or omissions in the calculation and dissemination of any variables published by a third party and used in any calculation or determination made pursuant to these terms and conditions or in the calculation of the Cash Settlement Amount arising from such errors or omissions. The Issuer s obligations to pay the Cash Settlement Amount shall be discharged by payment in accordance with Condition 4(D) above. (A) The Sponsor will not assume any obligation or duty to or any relationship or agency or trust for the Warrantholders. 72

75 (B) The Issuer reserves the right, subject to the appointment of a successor, at any time to vary or terminate the appointment of the Sponsor and to appoint another sponsor provided that it will at all times maintain a sponsor in Hong Kong for so long as the Warrants are listed on the Stock Exchange. Notice of any such termination or appointment of the Sponsor will be given to the holder in accordance with Condition Adjustments to the Index (A) (B) (C) (D) If the Index is (i) not calculated and announced by the Index Compiler but is calculated and published by a successor to the Index Compiler (the Successor Index Compiler ) acceptable to the Issuer or (ii) replaced by a successor index using, in the determination of the Issuer, the same or a substantially similar formula for and method of calculation as used in the calculation of the Index, then the Index will be deemed to be the index so calculated and announced by the Successor Index Compiler or that successor index, as the case may be. If (i) on or prior to the Valuation Date the Index Compiler or (if applicable) the Successor Index Compiler makes a material change in the formula for or the method of calculating the Index or in any other way materially modifies the Index (other than a modification prescribed in that formula or method to maintain the Index in the event of changes in constituent stock, contracts or commodities and other routine events), or (ii) on the Valuation Date the Index Compiler or (if applicable) the Successor Index Compiler fails to calculate and publish the Index (other than as a result of a Market Disruption Event), then the Issuer shall determine the Closing Level using, in lieu of a published level for the Index, the level for the Index as at the Valuation Date as determined by the Issuer in accordance with the formula for and method of calculating the Index last in effect prior to the change or failure, but using only those securities/commodities that comprised the Index immediately prior to that change or failure (other than those securities that have since ceased to be listed on the relevant exchange). Without prejudice to and notwithstanding any prior adjustment(s) made pursuant to the applicable terms and conditions, the Issuer may (but shall not be obliged to) make such other adjustments to the terms and conditions of the Warrants as appropriate where any event (including the events as contemplated in the applicable terms and conditions) occurs and irrespective of, in substitution for, or in addition to the provisions contemplated in applicable terms and conditions, provided that such adjustment is: (a) not materially prejudicial to the interests of the Warrantholders generally (without considering the circumstances of any individual Warrantholder or the tax or other consequences of such adjustment in any particular jurisdiction); or (b) determined by the Issuer in good faith to be appropriate and commercially reasonable. All determinations made by the Issuer pursuant hereto will be conclusive and binding on the Warrantholders. The Issuer will give, or procure that there is given, notice as soon as practicable of any determinations by publication in accordance with Condition Purchase by the Issuer The Issuer and any of its affiliates may purchase Warrants at any time on or after the date of their issue and any Warrants which are so purchased may be surrendered for cancellation or offered from time to time in one or more transactions in the over-the-counter market or otherwise at prevailing market prices or in negotiated transactions, at the sole and absolute discretion of the Issuer or any such affiliate, as the case may be. 73

76 8 Global Certificate A global certificate (the Global Certificate ) representing the Warrants will be deposited within CCASS and registered in the name of HKSCC Nominees Limited (or its successors) or another nominee of Hong Kong Securities Clearing Company Limited. The Global Certificate will not be exchangeable for definitive certificates. 9 Meeting of Warrantholders; Modification (A) Meetings of Warrantholders. Notices for convening meetings to consider any matter affecting the Warrantholders interests will be given to the Warrantholders in accordance with the provisions of Condition 10. Every question submitted to a meeting of the Warrantholders shall be decided by poll. A meeting may be convened by the Issuer or by the Warrantholders holding not less than 10 per cent. of the Warrants for the time being remaining unexercised. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons (including any nominee appointed by the Warrantholders) holding or representing not less than 25 per cent. of the Warrants for the time being remaining unexercised, or at any adjourned meeting two or more persons (including any nominee appointed by the Warrantholders) being or representing Warrantholders whatever the number of Warrants so held or represented. Extraordinary Resolution means a resolution passed at a duly convened meeting by not less than three-quarters of the votes cast by such Warrantholders as, being entitled to do so, vote in person or by proxy. An Extraordinary Resolution passed at any meeting of the Warrantholders shall be binding on all the holders of the Warrants, whether or not they are present at the meeting. Resolutions can be passed in writing without a meeting of the Warrantholders being held if passed unanimously. Where the Warrantholder is a clearing house recognised by the laws of Hong Kong or its nominee(s), it may authorise such person or person(s) as it thinks fit to act as its representative(s) or proxy(ies) at any Warrantholders meeting provided that, if more than one person is so authorised, the authorisation or proxy form must specify the number of Warrants in respect of which each such person is so authorised. Each person so authorised will be entitled to exercise the same powers and right, including the right to vote on a show of hands, on behalf of the recognised clearing house or its nominee(s) as that clearing house or its nominee(s) as if he was an individual Warrantholder. (B) Modification. The Issuer may, without the consent of the Warrantholders, effect any modification of the terms and conditions of the Warrants or the Instrument which, in the opinion of the Issuer, is (i) not materially prejudicial to the interests of the Warrantholders generally (without considering the circumstances of any individual Warrantholder or the tax or other consequences of such modification in any particular jurisdiction); (ii) of a formal, minor or technical nature; (iii) made to correct a manifest error; or (iv) necessary in order to comply with mandatory provisions of the laws or regulations of Hong Kong. Any such modification shall be binding on the Warrantholders and shall be notified to them by the Issuer as soon as practicable thereafter in accordance with Condition

77 10 Notices All notices in English and Chinese to the Warrantholders will be validly given if published on the website of the Hong Kong Exchanges and Clearing Limited. In such circumstances, the Issuer shall not be required to dispatch copies of the notice to the Warrantholders. 11 Further Issues The Issuer shall be at liberty from time to time, without the consent of the Warrantholders, to create and issue further warrants, upon such terms as to issue price, commencement of the exercise period and otherwise as the Issuer may determine so as to form a single series with the Warrants. 12 Illegality or Impracticability The Issuer is entitled to terminate the Warrants if it determines in good faith and in a commercially reasonable manner that, for reasons beyond its control, it has become or it will become illegal or impracticable: (a) for it to perform its obligations under the Warrants, in whole or in part as a result of: (i) (ii) the adoption of, or any change in, any relevant law or regulation (including any tax law); or the promulgation of, or any change in, the interpretation by any court, tribunal, governmental, administrative, legislative, regulatory or judicial authority or power with competent jurisdiction of any relevant law or regulation (including any tax law), (each of (i) and (ii), a Change in Law Event ); or (b) for it or any of its affiliates to maintain the Issuer s hedging arrangements with respect to the Warrants due to a Change in Law Event. Upon the occurrence of a Change in Law Event, the Issuer will, if and to the extent permitted by the applicable law or regulation, pay to each Warrantholder a cash amount that the Issuer determines in good faith and in a commercially reasonable manner to be the fair market value in respect of each Warrant held by such Warrantholder immediately prior to such termination (ignoring such illegality or impracticability) less the cost to the Issuer of unwinding any related hedging arrangement as determined by the Issuer in its sole and absolute discretion. Payment will be made in such manner as shall be notified to the Warrantholders in accordance with Condition Good Faith and Commercially Reasonable Manner Any exercise of discretion by the Issuer under these terms and conditions will be made in good faith and in a commercially reasonable manner. 14 Governing Law The Warrants and the Instrument will be governed by and construed in accordance with the laws of the Hong Kong Special Administrative Region of the People s Republic of China ( Hong Kong ). The Issuer and the Warrantholder (by its acquisition of the Warrants) shall be deemed to have submitted for all purposes in connection with the Warrants and the Instrument to the non-exclusive jurisdiction of the courts of Hong Kong. 75

78 15 Language In the event of any inconsistency between the English version and Chinese translation of these terms and conditions, the English version shall govern and prevail. Sponsor Standard Chartered Bank (Hong Kong) Limited 32/F, 4-4A Des Voeux Road Central Hong Kong 76

79 PART C TERMS AND CONDITIONS OF CASH-SETTLED WARRANTS RELATING TO THE UNITS OF A FUND OR TRUST These master terms and conditions will, together with the supplemental provisions contained in the relevant supplemental listing document and subject to completion and amendment, be endorsed on the back of the relevant global certificate. The applicable supplemental listing document in relation to the issue of any series of Warrants may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these master terms and conditions, replace or modify these master terms and conditions for the purpose of such series of Warrants. Capitalised terms used in these master terms and conditions and not otherwise defined therein shall have the meaning given to them in the relevant supplemental listing document. 1 Form; Status; Transfer and Title (A) The Warrants (which expression shall, unless the context otherwise requires, include any further warrants issued pursuant to Condition 13) relating to the Units of the Fund or Trust are issued in registered form subject to and with the benefit of the instrument dated 25 June 2010 (the Instrument ) made by Standard Chartered Bank (the Issuer ). A copy of the Instrument is available for inspection at the offices of Standard Chartered Bank (Hong Kong) Limited (the Sponsor ) at 15th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong or such other place as notified pursuant to Condition 10 from time to time. The Warrantholders (as hereinafter defined) are entitled to the benefit of, are bound by and are deemed to have notice of, all the provisions of the Instrument. (B) The settlement obligation of the Issuer in respect of the Warrants represent general unsecured contractual obligations of the Issuer and of no other person which rank, and will rank, equally among themselves and pari passu with all other present and future unsecured and unsubordinated contractual obligations of the Issuer, except for obligations accorded preference by mandatory provisions of applicable law. Warrants represent general contractual obligations of the Issuer, and are not, nor is it the intention (expressed, implicit or otherwise) of the Issuer to create by the issue of Warrants, deposit liabilities of the Issuer or a debt obligation of any kind. (C) (D) (E) (F) Transfers of Warrants may be effected only in Board Lots or integral multiples thereof in the Central Clearing and Settlement System ( CCASS ) in accordance with the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time. Each person who is for the time being shown in the register kept by or on behalf of the Issuer outside of Hong Kong as the holder shall be treated by the Issuer as the absolute owner and holder of the Warrants. The expression Warrantholder shall be construed accordingly. Trading in Warrants on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) shall be suspended prior to the Expiry Date in accordance with the requirements of the Stock Exchange. The term Warrants refers to the Warrants set out in the relevant Supplemental Listing Document. 77

80 2 Warrant Rights and Exercise Expenses (A) (B) Every Board Lot entitles the Warrantholder, upon compliance with Condition 4, to payment of the Cash Settlement Amount (as defined in Condition 4(D)), if any, minus the determined Exercise Expenses (as defined in Condition 2(B)). If the Cash Settlement Amount is equal to or less than the determined Exercise Expenses, no amount is payable by the Issuer. The Warrantholder will be required to pay all charges which are incurred in respect of the exercise of the Warrants (the Exercise Expenses ). To effect such payment, an amount equivalent to the Exercise Expenses will be deducted by the Issuer from the Cash Settlement Amount in accordance with Condition 4(B). 3 Automatic Exercise (A) (B) (C) Any Warrant in respect of which the Cash Settlement Amount would be payable by the Issuer if exercised on the Expiry Date shall be deemed to be automatically exercised on the Expiry Date (the Automatic Exercise ). Any Warrant which has not been automatically exercised in accordance with Condition 3(A) shall expire immediately without value thereafter and all rights of the Warrantholder and obligations of the Issuer with respect to such Warrant shall cease. In these terms and conditions, Business Day means a day (excluding Saturdays) on which the Stock Exchange is scheduled to open for dealings in Hong Kong and banks are open for business in Hong Kong. 4 Exercise of Warrants (A) Warrants may only be exercised in Board Lots or integral multiples thereof. (B) An irrevocable authorisation is deemed to be given to the Issuer to deduct any determined Exercise Expenses from the Cash Settlement Amount and an undertaking to pay any Exercise Expenses not deducted from the Cash Settlement Amount. Any Exercise Expenses which have not been determined by the Issuer on the Expiry Date shall be notified as soon as practicable after determination thereof by the Issuer to the Warrantholder and shall be paid by the Warrantholder forthwith in immediately available funds no later than 3 Business Days after the Warrantholder receives notice of any unpaid Exercise Expenses. (C) (D) Following the Expiry Date the Global Certificate will be cancelled. Subject to the Automatic Exercise in accordance with Condition 3(A), the Issuer will as soon as practicable and not later than the Settlement Date in accordance with these terms and conditions procure payment of the aggregate Cash Settlement Amount minus the determined Exercise Expenses for all Warrants deemed exercised, electronically through CCASS by crediting the relevant bank account of the Warrantholder as appearing in the register kept by or on behalf of the Issuer. 78

81 Subject to adjustment as provided in Condition 6, Cash Settlement Amount per Board Lot means an amount in the Settlement Currency calculated by the Issuer in accordance with the following formula: In the case of a series of Call Warrants: Cash Settlement Amount per Board Lot = In the case of a series of Put Warrants: Cash Settlement Amount per Board Lot = Entitlement x (Average Price Exercise Price) x one Board Lot Number of Warrant(s) per Entitlement Entitlement x (Exercise Price Average Price) x one Board Lot Number of Warrant(s) per Entitlement Average Price shall be the arithmetic mean of the closing prices of one Unit, as derived from the daily quotation sheet of the Stock Exchange, subject to any adjustments to such closing prices as may be necessary to reflect any capitalisation, rights issue, distribution or the like in respect of each Valuation Date. CCASS Settlement Day has the meaning ascribed to the term Settlement Day in the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time, subject to such modification and amendment prescribed by Hong Kong Securities Clearing Company Limited from time to time. Entitlement means the number of Units to which the Warrants relate, as specified in the relevant Supplemental Listing Document. Market Disruption Event means: (1) the occurrence or existence on any Valuation Date during the one-half hour period that ends at the close of trading of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Stock Exchange or otherwise) on the Stock Exchange in (i) the Units or (ii) any options or futures contracts relating to the Units if, in any such case, such suspension or limitation is, in the determination of the Issuer, material; (2) the issuance of the tropical cyclone warning signal number 8 or above or the issuance of a BLACK rainstorm signal on any day which either (i) results in the Stock Exchange being closed for trading for the entire day; or (ii) results in the Stock Exchange being closed prior to its regular time for close of trading for the relevant day (for the avoidance of doubt, in the case when the Stock Exchange is scheduled to open for the morning trading session only, closed prior to its regular time for close of trading for the morning session), PROVIDED THAT there shall be no Market Disruption Event solely by reason of the Stock Exchange opening for trading later than its regular time for opening of trading on any day as a result of the tropical cyclone warning signal number 8 or above or the BLACK rainstorm signal having been issued; or (3) a limitation or closure of the Stock Exchange due to any unforeseen circumstances. Settlement Currency means the currency specified in the relevant Supplemental Listing Document. Settlement Date means the third CCASS Settlement Day after the later of (i) the Expiry Date and (ii) the day on which the Average Price is determined in accordance with these terms and conditions. 79

82 Valuation Date means each of the five Business Days immediately preceding the Expiry Date. If the Issuer determines, in its sole and absolute discretion, that a Market Disruption Event has occurred on any Valuation Date, then that Valuation Date shall be postponed until the first succeeding Business Day on which there is no Market Disruption Event irrespective of whether that postponed Valuation Date would fall on a Business Day that already is or is deemed to be a Valuation Date. For the avoidance of doubt, in the event that a Market Disruption Event has occurred and a Valuation Date is postponed as aforesaid, the closing price of the Units on the first succeeding Business Day will be used more than once in determining the Average Price, so that in no event shall there be less than five closing prices used to determine the Average Price. If the postponement of a Valuation Date as aforesaid would result in the Valuation Date falling on or after the Expiry Date, then: (i) (ii) the Business Day immediately preceding the Expiry Date (the Last Valuation Date ) shall be deemed to be the Valuation Date notwithstanding the Market Disruption Event; and the Issuer shall determine the closing price of the Units on the basis of its good faith estimate of the price that would have prevailed on the Last Valuation Date but for the Market Disruption Event. Any payment made pursuant to this Condition 4(D) shall be delivered at the risk and expense of the Warrantholder to the Warrantholder, or such bank, broker or agent in Hong Kong (if any) as is recorded on the register. (E) (F) If as a result of an event beyond the control of the Issuer, it is not possible for the Issuer to procure payment electronically through CCASS by crediting the relevant bank account of the Warrantholder on the original Settlement Date ( Settlement Disruption Event ), the Issuer shall use its reasonable endeavours to procure payment electronically through CCASS by crediting the relevant bank account of the Warrantholder as soon as reasonably practicable after the original Settlement Date. The Issuer will not be liable to the Warrantholder for any interest in respect of the amount due or any loss or damage that such Warrantholder may suffer as a result of the existence of a Settlement Disruption Event, nor shall the Issuer be liable under any circumstances for any acts or defaults of CCASS in relation to the performance of its duties in relation to the Warrants. These terms and conditions shall not be construed so as to give rise to any relationship of agency or trust between the Issuer or its agent (including the Sponsor) or nominee and the Warrantholder and neither the Stock Exchange, the Issuer nor its agent (including the Sponsor) or nominee shall owe any duty of a fiduciary nature to the Warrantholder. None of the Stock Exchange or the Issuer shall have any responsibility for any errors or omissions in the calculation and dissemination of any variables published by a third party and used in any calculation or determination made pursuant to these terms and conditions or in the calculation of the Cash Settlement Amount arising from such errors or omissions. The Issuer s obligations to pay the Cash Settlement Amount shall be discharged by payment in accordance with Condition 4(D) above. 80

83 5 Sponsor (A) (B) The Sponsor will not assume any obligation or duty to or any relationship or agency or trust for the Warrantholders. The Issuer reserves the right, subject to the appointment of a successor, at any time to vary or terminate the appointment of the Sponsor and to appoint another sponsor provided that it will at all times maintain a sponsor in Hong Kong for so long as the Warrants are listed on the Stock Exchange. Notice of any such termination or appointment of the Sponsor will be given to the holder in accordance with Condition Adjustments Adjustments may be made by the Issuer to the terms of the Warrants (including, but not limited to, the Exercise Price and the Entitlement) on the basis of the following provisions: (A) (i) If and whenever the Fund or Trust shall, by way of Rights (as defined below), offer new Units for subscription at a fixed subscription price to the holders of existing Units pro rata to existing holdings (a Rights Offer ), the Exercise Price and the Entitlement shall be adjusted on the Business Day on which the trading in the Units of the Fund or Trust becomes ex-entitlement in accordance with the following formulae: The Entitlement will be adjusted to: Adjusted Entitlement = Adjustment Factor x E The Exercise Price will be adjusted to: 1 Adjusted Exercise Price = Adjustment Factor Where: 1+M Adjustment Factor = 1 + (R/S) x M E: Existing Entitlement immediately prior to the Rights Offer xx X: Existing Exercise Price immediately prior to the Rights Offer S: Cum-Rights Unit price, being the closing price of an existing Unit, as derived from the daily quotation sheet of the Stock Exchange on the last Business Day on which the Units are traded on a cum-rights basis R: Subscription price per new Unit specified in the Rights Offer plus an amount equal to any distributions or other benefits foregone to exercise the Right M: Number of new Unit(s) per existing Unit (whether a whole or a fraction) each holder of an existing Unit is entitled to subscribe or have For the purposes of these terms and conditions, Rights means the right(s) attached to each existing Unit or needed to acquire one new Unit (as the case may be) which are given to a holder of existing Units to subscribe at a fixed subscription price for new Units pursuant to the Rights Offer (whether by the exercise of one Right, a part of a Right or an aggregate number of Rights). 81

84 (ii) The Adjusted Exercise Price (which shall be rounded to the nearest 0.001) shall take effect on the same day that the Entitlement is adjusted. (B) (i) If and whenever the Fund or Trust shall make an issue of Units credited as fully paid to holders of Units generally by way of capitalisation of profits or reserves (other than pursuant to a scrip distribution or similar scheme for the time being operated by the Fund or Trust or otherwise in lieu of a cash distribution) (and without any payment or other consideration being made or given by such holders) (a Bonus Issue ), the Entitlement and the Exercise Price will be adjusted, subject to Condition 6(B)(iii), on the Business Day on which the trading in the Units of the Fund or Trust becomes ex-entitlement in accordance with the following formulae: The Entitlement will be adjusted to: Adjusted Entitlement = Adjustment Factor x E The Exercise Price will be adjusted to: Where: Adjusted Exercise Price = 1 Adjustment Factor xx Adjustment Factor =1+M E: Existing Entitlement immediately prior to the Bonus Issue X: Existing Exercise Price immediately prior to the Bonus Issue M: Number of additional Units (whether a whole or a fraction) received by a holder of existing Units for each Unit held prior to the Bonus Issue (ii) The Adjusted Exercise Price (which shall be rounded to the nearest 0.001) shall take effect on the same day that the Entitlement is adjusted. (iii) For the purposes of Conditions 6(A) and 6(B), the Issuer may determine that no adjustment will be made if the adjustment to the Entitlement is 1 per cent. or less of the Entitlement immediately prior to the adjustment, all as determined by the Issuer. (C) (D) If and whenever the Fund or Trust shall subdivide its Units or any class of its outstanding Units into a greater number of units or consolidate the Units or any class of its outstanding Units into a smaller number of units, the Entitlement shall be increased and the Exercise Price shall be decreased (in the case of a subdivision) or the Entitlement shall be decreased and the Exercise Price shall be increased (in the case of a consolidation) accordingly, in each case on the day on which the relevant subdivision or consolidation shall have taken effect. The adjusted Exercise Price shall be rounded to the nearest If it is announced that the Fund or Trust is to or may merge or consolidate with or into any other trust or corporation (including becoming, by agreement or otherwise, a subsidiary of or controlled by any person or corporation) (except where the Fund or Trust is the surviving entity in a merger or consolidation) or that it is to or may sell or transfer all or substantially all of its assets, the rights attaching to the Warrants may in the sole and absolute discretion of the Issuer be amended no later than the Business Day preceding the consummation of such merger, consolidation, sale or transfer (each a Restructuring Event ) (as determined by the Issuer in its sole and absolute discretion). 82

85 The rights attaching to the Warrants after the adjustment shall, after such Restructuring Event, relate to the number of units of the trust(s) or fund(s) as the case may be resulting from or surviving such Restructuring Event or other securities (the Substituted Securities ) and/or cash offered in substitution for the affected Units, as the case may be, to which the holder of such number of Units to which the Warrants related immediately before such Restructuring Event would have been entitled upon such Restructuring Event. Thereafter the provisions hereof shall apply to such Substituted Securities, provided that any Substituted Securities may, in the sole and absolute discretion of the Issuer, be deemed to be replaced by an amount in the relevant currency equal to the market value or, if no market value is available, fair value, of such Substituted Securities in each case as determined by the Issuer as soon as practicable after such Restructuring Event is effected. For the avoidance of doubt, any remaining Units shall not be affected by this paragraph (D) and, where cash is offered in substitution for Units or is deemed to replace Substituted Securities as described above, references in these terms and conditions to the Units shall include any such cash. (E) Generally, no adjustment will be made for an ordinary cash dividend (whether or not it is offered with a scrip alternative). For any other forms of cash distribution (each a Cash Distribution ) announced by the Fund or Trust, such as a cash bonus, special dividend or extraordinary dividend, no adjustment will be made unless the value of the Cash Distribution accounts for 2 per cent. or more of the Unit s closing price on the day of announcement by the Fund or Trust. If and whenever the Fund or Trust shall make a Cash Distribution credited as fully paid to the holders of Units generally, the Exercise Price and the Entitlement shall be adjusted to take effect on the Business Day on which trading in the Units becomes ex-entitlement (each a Dividend Adjustment Date ) in accordance with the following formulae: The Entitlement will be adjusted to: The Exercise Price will be adjusted to: Adjusted Entitlement = Adjustment Factor x E Adjusted Exercise Price (which shall be rounded to the nearest 0.001) = 1 Adjustment Factor xx Where: S OD Adjustment Factor = S OD CD E: Existing Entitlement immediately prior to the relevant Cash Distribution X: Existing Exercise Price immediately prior to the relevant Cash Distribution S: The closing price of an Unit, as derived from the daily quotation sheet of the Stock Exchange on the Business Day immediately prior to the Dividend Adjustment Date OD: Amount of ordinary cash dividend per Unit (applicable only if the date on which trading in the Units becomes ex-entitlement in respect of the ordinary cash dividend is the same as the Dividend Adjustment Date) 83

86 CD: Amount of the relevant Cash Distribution per Unit (F) (G) Without prejudice to and notwithstanding any prior adjustment(s) made pursuant to the applicable terms and conditions, the Issuer may (but shall not be obliged to) make such other adjustments to the terms and conditions of the Warrants as appropriate where any event (including the events as contemplated in the applicable terms and conditions) occurs and irrespective of, in substitution for, or in addition to the provisions contemplated in applicable terms and conditions, provided that such adjustment is: (a) not materially prejudicial to the interests of the Warrantholders generally (without considering the circumstances of any individual Warrantholder or the tax or other consequences of such adjustment in any particular jurisdiction); or (b) determined by the Issuer in good faith to be appropriate and commercially reasonable. The Issuer shall determine any adjustment or amendment and its determination shall be conclusive and binding on the Warrantholders save in the case of manifest error. Notice of any adjustments or amendments shall be given to the Warrantholders in accordance with Condition 10 as soon as practicable after the determination thereof. 7 Purchase by the Issuer The Issuer and any of its affiliates may purchase Warrants at any time on or after the date of their issue and any Warrants which are so purchased may be surrendered for cancellation or offered from time to time in one or more transactions in the over-the-counter market or otherwise at prevailing market prices or in negotiated transactions, at the sole and absolute discretion of the Issuer or any such affiliate, as the case may be. 8 Global Certificate A global certificate (the Global Certificate ) representing the Warrants will be deposited within CCASS and registered in the name of HKSCC Nominees Limited (or its successors) or another nominee of Hong Kong Securities Clearing Company Limited. The Global Certificate will not be exchangeable for definitive certificates. 9 Meeting of Warrantholders; Modification (A) Meetings of Warrantholders. Notices for convening meetings to consider any matter affecting the Warrantholders interests will be given to the Warrantholders in accordance with the provisions of Condition 10. Every question submitted to a meeting of the Warrantholders shall be decided by poll. A meeting may be convened by the Issuer or by the Warrantholders holding not less than 10 per cent. of the Warrants for the time being remaining unexercised. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons (including any nominee appointed by the Warrantholders) holding or representing not less than 25 per cent. of the Warrants for the time being remaining unexercised, or at any adjourned meeting two or more persons (including any nominee appointed by the Warrantholders) being or representing Warrantholders whatever the number of Warrants so held or represented. Extraordinary Resolution means a resolution passed at a duly convened meeting by not less than three-quarters of the votes cast by such Warrantholders as, being entitled to do so, vote in person or by proxy. An Extraordinary Resolution passed at any meeting of the Warrantholders shall be binding on all the holders of the Warrants, whether or not they are present at the meeting. 84

87 Resolutions can be passed in writing without a meeting of the Warrantholders being held if passed unanimously. Where the Warrantholder is a clearing house recognised by the laws of Hong Kong or its nominee(s), it may authorise such person or person(s) as it thinks fit to act as its representative(s) or proxy(ies) at any Warrantholders meeting provided that, if more than one person is so authorised, the authorisation or proxy form must specify the number of Warrants in respect of which each such person is so authorised. Each person so authorised will be entitled to exercise the same powers and right, including the right to vote on a show of hands, on behalf of the recognised clearing house or its nominee(s) as that clearing house or its nominee(s) as if he was an individual Warrantholder. (B) Modification. The Issuer may, without the consent of the Warrantholders, effect any modification of the terms and conditions of the Warrants or the Instrument which, in the opinion of the Issuer, is (i) not materially prejudicial to the interests of the Warrantholders generally (without considering the circumstances of any individual Warrantholder or the tax or other consequences of such modification in any particular jurisdiction); (ii) of a formal, minor or technical nature; (iii) made to correct a manifest error; or (iv) necessary in order to comply with mandatory provisions of the laws or regulations of Hong Kong. Any such modification shall be binding on the Warrantholders and shall be notified to them by the Issuer as soon as practicable thereafter in accordance with Condition Notices All notices in English and Chinese to the Warrantholders will be validly given if published on the website of the Hong Kong Exchanges and Clearing Limited. In such circumstances, the Issuer shall not be required to dispatch copies of the notice to the Warrantholders. 11 Termination or Liquidation of Fund or Trust In the event of a Termination or the liquidation or dissolution of the trustee of the Fund or Trust (including any successor trustee appointed from time to time) ( Trustee ) (in its capacity as trustee of the Fund or Trust) or the appointment of a liquidator, receiver or administrator or analogous person under applicable law in respect of the whole or substantially the whole of the Trustee s undertaking, property or assets all unexercised Warrants will lapse and shall cease to be valid for any purpose. In the case of a Termination the unexercised Warrants will lapse and shall cease to be valid on the effective date of the Termination, in the case of a voluntary liquidation, on the effective date of the resolution and, in the case of an involuntary liquidation or dissolution, on the date of the relevant court order or, in the case of the appointment of a liquidator or receiver or administrator or analogous person under applicable law in respect of the whole or substantially the whole of the Trustee s undertaking, property or assets, on the date when such appointment is effective but subject (in any such case) to any contrary mandatory requirement of law. For the purpose of this Condition 11, Termination means (i) the Fund or Trust is terminated, or the Trustee or the manager of the Fund or Trust (including any successor manager appointed from time to time) ( Manager ) is required to terminate the Fund or Trust under the trust deed ( Trust Deed ) constituting the Fund or Trust or applicable law, or the termination of the Fund or Trust commences; (ii) the Fund or Trust is held or is conceded by the Trustee or the Manager not to have been constituted or to have been imperfectly constituted; (iii) the Trustee ceases to be authorised under the Fund or Trust to hold the property of the Fund or Trust in its name and perform its obligations under the Trust Deed; or (iv) the Fund or Trust ceases to be authorised as an authorised collective investment scheme under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong). 85

88 12 Delisting of Fund or Trust (A) (B) (C) If at any time the Units cease to be listed on the Stock Exchange, the Issuer shall give effect to these terms and conditions in such manner and make such adjustments to the rights attaching to the Warrants as it shall, in its sole and absolute discretion, consider appropriate to ensure, so far as it is reasonably able to do so, that the interests of the Warrantholders generally are not materially prejudiced as a consequence of such delisting (without considering the individual circumstances of the Warrantholder or the tax or other consequences that may result in any particular jurisdiction). Without prejudice to the generality of Condition 12(A), where the Units are or, upon the delisting, become, listed on any other stock exchange, these terms and conditions may, in the sole and absolute discretion of the Issuer, be amended to the extent necessary to allow for the substitution of that other stock exchange in place of the Stock Exchange and the Issuer may, without the consent of the Warrantholders, make such adjustments to the entitlements of the Warrantholders on exercise (including, if appropriate, by converting foreign currency amounts at prevailing market rates into amounts in the relevant currency) as it shall consider appropriate in the circumstances. Any adjustment, amendment or determination made by the Issuer pursuant to this Condition 12 shall be conclusive and binding on the Warrantholders save in the case of manifest error. Notice of any adjustments or amendments shall be given to the Warrantholders in accordance with Condition 10 as soon as practicable after they are determined. 13 Further Issues The Issuer shall be at liberty from time to time, without the consent of the Warrantholders, to create and issue further warrants, upon such terms as to issue price, commencement of the exercise period and otherwise as the Issuer may determine so as to form a single series with the Warrants. 14 Illegality or Impracticability The Issuer is entitled to terminate the Warrants if it determines in good faith and in a commercially reasonable manner that, for reasons beyond its control, it has become or it will become illegal or impracticable: (a) for it to perform its obligations under the Warrants, in whole or in part as a result of: (i) (ii) the adoption of, or any change in, any relevant law or regulation (including any tax law); or the promulgation of, or any change in, the interpretation by any court, tribunal, governmental, administrative, legislative, regulatory or judicial authority or power with competent jurisdiction of any relevant law or regulation (including any tax law), (each of (i) and (ii), a Change in Law Event ); or (b) for it or any of its affiliates to maintain the Issuer s hedging arrangements with respect to the Warrants due to a Change in Law Event. Upon the occurrence of a Change in Law Event, the Issuer will, if and to the extent permitted by the applicable law or regulation, pay to each Warrantholder a cash amount that the Issuer determines in good faith and in a commercially reasonable manner to be the fair market value in 86

89 respect of each Warrant held by such Warrantholder immediately prior to such termination (ignoring such illegality or impracticability) less the cost to the Issuer of unwinding any related hedging arrangement as determined by the Issuer in its sole and absolute discretion. Payment will be made in such manner as shall be notified to the Warrantholders in accordance with Condition Good Faith and Commercially Reasonable Manner Any exercise of discretion by the Issuer under these terms and conditions will be made in good faith and in a commercially reasonable manner. 16 Governing Law The Warrants and the Instrument will be governed by and construed in accordance with the laws of the Hong Kong Special Administrative Region of the People s Republic of China ( Hong Kong ). The Issuer and the Warrantholder (by its acquisition of the Warrants) shall be deemed to have submitted for all purposes in connection with the Warrants and the Instrument to the non-exclusive jurisdiction of the courts of Hong Kong. 17 Language In the event of any inconsistency between the English version and Chinese translation of these terms and conditions, the English version shall govern and prevail. Sponsor Standard Chartered Bank (Hong Kong) Limited 32/F, 4-4A Des Voeux Road Central Hong Kong 87

90 ANNEX 2 PART A TERMS AND CONDITIONS OF CASH-SETTLED CALLABLE BULL/BEAR CONTRACTS RELATING TO A SHARE These master terms and conditions will, together with the supplemental provisions contained in the relevant supplemental listing document and subject to completion and amendment, be endorsed on the back of the relevant global certificate. The applicable supplemental listing document in relation to the issue of any series of CBBCs may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these master terms and conditions, replace or modify these master terms and conditions for the purpose of such series of CBBCs. Capitalised terms used in these master terms and conditions and not otherwise defined therein shall have the meaning given to them in the relevant supplemental listing document. 1 Form; Status; Transfer and Title (A) The callable bull/bear contracts or CBBCs (which expression shall, unless the context otherwise requires, include any further CBBCs issued pursuant to Condition 12) relating to the Shares of the Company are issued in registered form subject to and with the benefit of the instrument dated 25 June 2010 (the Instrument ) made by Standard Chartered Bank (the Issuer ). A copy of the Instrument is available for inspection at the offices of Standard Chartered Bank (Hong Kong) Limited (the Sponsor ) at 15th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong or such other place as notified pursuant to Condition 9 from time to time. The Holders (as hereinafter defined) are entitled to the benefit of, are bound by and are deemed to have notice of, all the provisions of the Instrument. (B) The settlement obligations of the Issuer in respect of the CBBCs represent general unsecured contractual obligations of the Issuer and of no other person which rank, and will rank, equally among themselves and pari passu with all other present and future unsecured and unsubordinated contractual obligations of the Issuer, except for obligations accorded preference by mandatory provisions of applicable law. CBBCs represent general contractual obligations of the Issuer, and are not, nor is it the intention (expressed, implicit or otherwise) of the Issuer to create by the issue of CBBCs deposit liabilities of the Issuer or a debt obligation of any kind. (C) (D) Transfers of CBBCs may be effected only in a Board Lot or integral multiples thereof in the Central Clearing and Settlement System ( CCASS ) in accordance with the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time. Each person who is for the time being shown in the register kept by or on behalf of the Issuer outside of Hong Kong as the holder shall be treated by the Issuer as the absolute owner and holder of the CBBCs (which shall be HKSCC Nominees Limited (or its successor) or another nominee of Hong Kong Securities Clearing Company Limited for so long as the CBBCs are accepted as eligible securities in CCASS). The expression Holder shall be construed accordingly. (E) Trading in CBBCs on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) shall be suspended after the occurrence of a Mandatory Call Event in accordance with the rules of the Stock Exchange. None of the Stock Exchange, the Issuer nor any of its affiliates shall have any responsibility towards the Holder for any losses 88

91 suffered in connection with the determination of a Mandatory Call Event, whether or not such losses are a result of the suspension of trading of the CBBCs, notwithstanding that such suspension may have occurred as a result of an error in the determination of the event. 2 CBBCs Rights and Exercise Expenses (A) (B) Every Board Lot of the CBBCs entitles the Holder to payment of the Cash Settlement Amount (as defined in Condition 3(D)), if any, minus the determined Exercise Expenses (as defined in Condition 3(D)). If the Cash Settlement Amount is equal to or less than the determined Exercise Expenses, no amount is payable by the Issuer. The Holder will be required to pay the Exercise Expenses in respect of a Mandatory Call Termination or Automatic Exercise of the CBBCs. To effect such payment, an amount equivalent to the Exercise Expenses will be deducted by the Issuer from the Cash Settlement Amount in accordance with Condition 3(D). Any Exercise Expenses which have not been determined by the Issuer after the end of the MCE Valuation Period or on the Valuation Date (as the case may be) shall be notified as soon as practicable after determination thereof by the Issuer to the Holder and shall be paid by the Holder forthwith in immediately available funds no later than 3 Business Days after the Holder receives notice of any unpaid Exercise Expenses. (C) An irrevocable authorisation is deemed to be given to the Issuer to deduct any determined Exercise Expenses from the Cash Settlement Amount. 3 Mandatory Call Termination and Automatic Exercise (A) Upon the occurrence of a Mandatory Call Event, the CBBCs will terminate automatically on the day on which the Mandatory Call Event occurs ( Mandatory Call Termination ) and the Issuer will give notice of the occurrence of the Mandatory Call Event to the Holders in accordance with Condition 9. Trading in the CBBCs will be suspended immediately upon the occurrence of a Mandatory Call Event and all Post MCE Trades will be cancelled and will not be recognised by the Stock Exchange or the Issuer. Whereas: Business Day means a day (excluding Saturdays) on which the Stock Exchange is scheduled to open for dealings in Hong Kong and banks are open for business in Hong Kong; CCASS Settlement Day has the meaning ascribed to the term Settlement Day in the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time, subject to such modification and amendment prescribed by Hong Kong Securities Clearing Company Limited from time to time; Mandatory Call Event occurs when the Spot Price of the Shares at any time during a Trading Day in the Observation Period is (in the case of a series of bull CBBCs) at or below the Call Price or (in the case of a series of bear CBBCs) at or above the Call Price; Observation Period means the period from and including the Observation Commencement Date to and including the Trading Day immediately preceding the Expiry Date; 89

92 Post MCE Trades has the meaning given to it in the relevant Supplemental Listing Document, subject to such modification and amendment prescribed by the Stock Exchange from time to time; Spot Price means: (i) (ii) in respect of a continuous trading session of the Stock Exchange, the price per Share concluded by means of automatic order matching on the Stock Exchange as reported in the official real-time dissemination mechanism for the Stock Exchange during such continuous trading session in accordance with the Rules and Regulations of the Stock Exchange prescribed by the Stock Exchange from time to time ( Trading Rules ), excluding direct business (as defined in the Trading Rules); and in respect of a pre-opening session or a closing auction session (if any) of the Stock Exchange, as the case may be, the final Indicative Equilibrium Price (as defined in the Trading Rules) of the Share (if any) calculated at the end of the pre-order matching period of such pre-opening session or closing auction session (if any), as the case may be, in accordance with the Trading Rules, excluding direct business (as defined in the Trading Rules), subject to such modification and amendment prescribed by the Stock Exchange from time to time; and Trading Day means any day on which the Stock Exchange is scheduled to open for trading for its regular trading sessions. (B) (C) (D) Any CBBCs with respect to which a Mandatory Call Event has not occurred during the Observation Period shall be deemed to be automatically exercised on the Expiry Date (the Automatic Exercise ). Following the occurrence of a Mandatory Call Event or the Expiry Date, the Global Certificate will be cancelled. Following a Mandatory Call Termination or the Automatic Exercise in accordance with Conditions 3(A) or 3(B), the Issuer will as soon as practicable and on a day no later than the Settlement Date in accordance with these terms and conditions procure payment of the aggregate Cash Settlement Amount minus the determined Exercise Expenses for all CBBCs terminated or deemed automatically exercised in favour of the Holder as appearing in the register kept by or on behalf of the Issuer. Any payment of the Cash Settlement Amount made pursuant to this Condition 3(D) shall be delivered at the risk and expense of the Holder to the Holder as recorded on the register, or such bank, broker or agent in Hong Kong (if any) as directed by the Holder. 90

93 Whereas: Cash Settlement Amount per Board Lot means, subject to adjustment as provided in Condition 5, an amount determined by the Issuer in accordance with the following formula: (i) if no Mandatory Call Event has occurred: (a) in the case of a series of bull CBBCs: Cash Settlement Amount per Board Lot = Entitlement x (Closing Price Strike Price) x one Board Lot Number of CBBC(s) per Entitlement (b) in the case of a series of bear CBBCs: Cash Settlement Amount per Board Lot = Entitlement x (Strike Price Closing Price) x one Board Lot Number of CBBC(s) per Entitlement (ii) following a Mandatory Call Event: (a) (b) in the case of a series of Category R CBBCs, the Residual Value; or in the case of a series of Category N CBBCs, zero. Provided that if the relevant formula above produces an amount that is equal to or less than the determined Exercise Expenses, then no amount shall be payable. The aggregate Cash Settlement Amount payable to a Holder shall be expressed in the Settlement Currency; Closing Price shall be the closing price of one Share (as derived from the daily quotation sheet of the Stock Exchange, subject to any adjustments to such closing price as may be necessary to reflect any capitalisation, rights issue, distribution or the like) on the Valuation Date; Entitlement means such number of Shares to which the CBBC relates, as specified in the relevant Supplemental Listing Document; Exercise Expenses means all taxes, duties and/or expenses, including all applicable depository, transaction or exercise charges, stamp duties, stamp duty reserve tax, issue, registration, securities transfer and/or other taxes or duties, arising in connection with (i) the Mandatory Call Termination (not applicable in the case of Category N CBBCs) or Automatic Exercise of such CBBC and/or (ii) any payment due following Mandatory Call Termination or Automatic Exercise in respect of such CBBC; Market Disruption Event means: (i) the occurrence or existence on any Trading Day during the one-half hour period that ends at the close of trading of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Stock Exchange or otherwise) on the Stock Exchange in (a) the Shares; or (b) any options or futures contracts relating to the Shares if, in any such case, such suspension or limitation is, in the determination of the Issuer, material; 91

94 (ii) the issuance of the tropical cyclone warning signal number 8 or above or the issuance of a BLACK rainstorm signal on any day which either (i) results in the Stock Exchange being closed for trading for the entire day; or (ii) results in the Stock Exchange being closed prior to its regular time for close of trading for the relevant day (for the avoidance of doubt, in the case when the Stock Exchange is scheduled to open for the morning trading session only, closed prior to its regular time for close of trading for the morning session), PROVIDED THAT there shall be no Market Disruption Event solely by reason of the Stock Exchange opening for trading later than its regular time for opening of trading on any day as a result of the tropical cyclone warning signal number 8 or above or the BLACK rainstorm signal having been issued; or (iii) a limitation or closure of the Stock Exchange due to any unforeseen circumstances; Maximum Trade Price means the highest Spot Price of the Shares during the MCE Valuation Period; MCE Valuation Period means the period commencing from and including the moment upon which the Mandatory Call Event occurs (the trading session on the Stock Exchange during which the Mandatory Call Event occurs is the 1st Session ) and up to the end of the trading session on the Stock Exchange immediately following the 1st Session ( 2nd Session ) unless, in the determination of the Issuer in its good faith, the 2nd Session for any reason (including, without limitation, a Market Disruption Event occurring and subsisting in the 2nd Session) does not contain any continuous period of 1 hour or more than 1 hour during which trading in the Shares is permitted on the Stock Exchange with no limitation imposed, the MCE Valuation Period shall be extended to the end of the subsequent trading session following the 2nd Session during which trading in the Shares is permitted on the Stock Exchange with no limitation imposed for a continuous period of at least 1 hour notwithstanding the existence or continuance of a Market Disruption Event in such postponed trading session, unless the Issuer determines in its good faith that each trading session on each of the four Trading Days immediately following the date on which the Mandatory Call Event occurs does not contain any continuous period of 1 hour or more than 1 hour during which trading in the Shares is permitted on the Stock Exchange with no limitation imposed. In that case: (i) (ii) the period commencing from the 1st Session up to, and including, the last trading session on the Stock Exchange of the fourth Trading Day immediately following the date on which the Mandatory Call Event occurs shall be deemed to be the MCE Valuation Period; and the Issuer shall determine the Maximum Trade Price or the Minimum Trade Price (as the case may be) having regard to the then prevailing market conditions, the last reported Spot Price and such other factors as the Issuer may determine to be relevant in its good faith. For the avoidance of doubt, all Spot Prices available throughout the extended MCE Valuation Period shall be taken into account to determine the Maximum Trade Price or the Minimum Trade Price (as the case may be) for the calculation of the Residual Value. For the purposes of this definition, (a) (b) the pre-opening session, the morning session and, in the case of half day trading, the closing auction session (if applicable) of the same day; and the afternoon session and the closing auction session (if applicable) of the same day, 92

95 shall each be considered as one trading session only; Minimum Trade Price means the lowest Spot Price of the Shares during the MCE Valuation Period; Residual Value per Board Lot means, subject to adjustment as provided in Condition 5: (i) in the case of a series of bull CBBCs: Residual Value per Board Lot = Entitlement x (Minimum Trade Price Strike Price) x one Board Lot Number of CBBC(s) per Entitlement (ii) in the case of a series of bear CBBCs: Residual Value per Board Lot = Entitlement x (Strike Price Maximum Trade Price) x one Board Lot Number of CBBC(s) per Entitlement Settlement Currency means the currency specified in the relevant Supplemental Listing Document; and Settlement Date means the third CCASS Settlement Day after (i) the end of the MCE Valuation Period or (ii) the later of: (a) the Expiry Date; and (b) the day on which the Closing Price is determined in accordance with these terms and conditions (as the case may be). Valuation Date means the Trading Day immediately preceding the Expiry Date. If the Issuer determines, in its sole and absolute discretion, that a Market Disruption Event has occurred on the Valuation Date, then the Valuation Date shall be the first succeeding Trading Day on which the Issuer determines that there is no Market Disruption Event, unless the Issuer determines that there is a Market Disruption Event occurring on each of the four Trading Days immediately following the original date which (but for the Market Disruption Event) would have been the Valuation Date. In that case: (a) the fourth Trading Day immediately following the original date shall be deemed to be the Valuation Date (regardless of the Market Disruption Event); and (b) the Issuer shall determine the Closing Price having regard to the then prevailing market conditions, the last reported trading price of the Share on the Stock Exchange and such other factors as the Issuer determines to be relevant. (E) (F) If as a result of an event beyond the control of the Issuer, it is not possible for the Issuer to procure payment electronically through CCASS by crediting the relevant bank account of the Holder on the original Settlement Date ( Settlement Disruption Event ), the Issuer shall use its reasonable endeavours to procure payment electronically through CCASS by crediting the relevant bank account of the Holder as soon as reasonably practicable after the original Settlement Date. The Issuer will not be liable to the Holder for any interest in respect of the amount due or any loss or damage that such Holder may suffer as a result of the existence of a Settlement Disruption Event, nor shall the Issuer be liable under any circumstances for any acts or defaults of CCASS in relation to the performance of its duties in relation to the CBBCs. These terms and conditions shall not be construed so as to give rise to any relationship of agency or trust between the Stock Exchange, the Issuer or its agent (including the Sponsor) or nominee and the Holder and neither the Stock Exchange, the Issuer nor its agent (including the Sponsor) or nominee shall owe any duty of a fiduciary nature to the Holder. 93

96 4 Sponsor None of the Stock Exchange or the Issuer shall have any responsibility for any errors or omissions in the calculation and determination of any variables published by it or a third party and used in any calculation or determination made pursuant to these terms and conditions (including the determination as the occurrence of the Mandatory Call Event) or in the calculation of the Cash Settlement Amount arising from such errors or omissions. The Issuer s obligations to pay the Cash Settlement Amount shall be discharged by payment in accordance with Condition 3(D) above. (A) (B) The Sponsor will not assume any obligation or duty to or any relationship or agency or trust for the Holders. The Issuer reserves the right, subject to the appointment of a successor, at any time to vary or terminate the appointment of the Sponsor and to appoint another sponsor provided that it will at all times maintain a sponsor in Hong Kong for so long as the CBBCs are listed on the Stock Exchange. Notice of any such termination or appointment of the Sponsor will be given to the Holders in accordance with Condition 9. 5 Adjustments Adjustments may be made by the Issuer to the terms of the CBBCs (including, but not limited to (i) the Strike Price, (ii) the Call Price and/or (iii) the Entitlement) on the basis of the following provisions: (A) (i) If and whenever the Company shall, by way of Rights (as defined below), offer new Shares for subscription at a fixed subscription price to the holders of existing Shares pro rata to existing holdings (a Rights Offer ), the Strike Price, the Call Price and the Entitlement shall be adjusted on the Business Day on which the trading in the Shares of the Company becomes ex-entitlement in accordance with the following formulae: The Entitlement will be adjusted to: The Strike Price will be adjusted to: Adjusted Entitlement = Adjustment Factor x E Adjusted Strike Price = The Call Price will be adjusted to: Whereas: Adjusted Call Price = 1 Adjustment Factor 1 Adjustment Factor 1+M Adjustment Factor = 1 + (R/S) x M E: Existing Entitlement immediately prior to the Rights Offer X: Existing Strike Price immediately prior to the Rights Offer Y: Existing Call Price immediately prior to the Rights Offer xx xy 94

97 S: Cum-Rights Share price, being the closing price of an existing Share, as derived from the daily quotation sheet of the Stock Exchange on the last Business Day on which the Shares are traded on a cum-rights basis R: Subscription price per new Share specified in the Rights Offer plus an amount equal to any dividends or other benefits foregone to exercise the Right M: Number of new Shares per existing Share (whether a whole or a fraction) each holder of an existing Share is entitled to subscribe or have For the purposes of these terms and conditions, Rights means the right(s) attached to each existing Share or needed to acquire one new Share (as the case may be) which are given to a holder of existing Shares to subscribe at a fixed subscription price for new Shares pursuant to the Rights Offer (whether by the exercise of one Right, a part of a Right or an aggregate number of Rights). (ii) The Adjusted Strike Price and the Adjusted Call Price (in each case rounded to the nearest 0.001) shall take effect on the same day that the Entitlement is adjusted. (B) (i) If and whenever the Company shall make an issue of Shares credited as fully paid to holders of Shares generally by way of capitalisation of profits or reserves (and without any payment or other consideration being made or given by such holders) (a Bonus Issue ), the Entitlement, the Strike Price and the Call Price will be adjusted, subject to Condition 5(B)(iii), on the Business Day on which the trading in the Shares of the Company becomes ex-entitlement in accordance with the following formulae: The Entitlement will be adjusted to: The Strike Price will be adjusted to: Adjusted Entitlement = Adjustment Factor x E Adjusted Strike Price = The Call Price will be adjusted to: Adjusted Call Price = Where: Adjustment Factor =1+M 1 Adjustment Factor 1 Adjustment Factor xx xy E: Existing Entitlement immediately prior to the Bonus Issue X: Existing Strike Price immediately prior to the Bonus Issue Y: Existing Call Price immediately prior to the Bonus Issue M: Number of additional Shares (whether a whole or a fraction) received by a holder of existing Shares for each Share held prior to the Bonus Issue (ii) The Adjusted Strike Price and the Adjusted Call Price (which shall be rounded to the nearest 0.001) shall take effect on the same day that the Entitlement is adjusted. 95

98 (iii) For the purposes of Conditions 5(A) and 5(B), the Issuer may determine that no adjustment will be made if the adjustment to the Entitlement is 1 per cent. or less of the Entitlement immediately prior to the adjustment, all as determined by the Issuer. (C) (D) If and whenever the Company shall subdivide its outstanding share capital into a greater number of shares or consolidate its outstanding share capital into a smaller number of shares, the Entitlement shall be increased and the Strike Price and the Call Price shall be decreased (in the case of a subdivision) or the Entitlement shall be decreased and the Strike Price and the Call Price shall be increased (in the case of a consolidation) accordingly, in each case on the day on which the relevant subdivision or consolidation shall have taken effect. The Adjusted Strike Price and the Adjusted Call Price shall be rounded to the nearest If it is announced that the Company is to or may merge or consolidate with or into any other corporation (including becoming, by agreement or otherwise, a subsidiary of or controlled by any person or corporation) (except where the Company is the surviving corporation in a merger or consolidation) or that it is to or may sell or transfer all or substantially all of its assets, the rights attaching to the CBBCs may in the sole and absolute discretion of the Issuer be amended no later than the Business Day preceding the consummation of such merger, consolidation, sale or transfer (each a Restructuring Event ) (as determined by the Issuer in its sole and absolute discretion). The rights attaching to the CBBCs after the adjustment shall, after such Restructuring Event, relate to the number of shares of the corporation(s) resulting from or surviving such Restructuring Event or other securities (the Substituted Securities ) and/or cash offered in substitution for the affected Shares, as the case may be, to which the holder of such number of Shares to which the CBBCs related immediately before such Restructuring Event would have been entitled upon such Restructuring Event. Thereafter the provisions hereof shall apply to such Substituted Securities, provided that any Substituted Securities may, in the sole and absolute discretion of the Issuer, be deemed to be replaced by an amount in the relevant currency equal to the market value or, if no market value is available, fair value, of such Substituted Securities in each case as determined by the Issuer as soon as practicable after such Restructuring Event is effected. For the avoidance of doubt, any remaining Shares shall not be affected by this paragraph (D) and, where cash is offered in substitution for Shares or is deemed to replace Substituted Securities as described above, references in these terms and conditions to the Shares shall include any such cash. (E) Generally, no adjustment will be made for an ordinary cash dividend (whether or not it is offered with a scrip alternative). For any other forms of cash distribution (each a Cash Distribution ) announced by the Company, such as a cash bonus, special dividend or extraordinary dividend, no adjustment will be made unless the value of the Cash Distribution accounts for 2 per cent. or more of the Share s closing price on the day of announcement by the Company. 96

99 If and whenever the Company shall make a Cash Distribution credited as fully paid to the holders of Shares generally, the Strike Price, the Call Price and the Entitlement shall be adjusted to take effect on the Business Day on which trading in the Shares becomes ex-entitlement (each a Dividend Adjustment Date ) in accordance with the following formulae: The Entitlement will be adjusted to: The Strike Price will be adjusted to: Adjusted Entitlement = Adjustment Factor x E Adjusted Strike Price (which shall be rounded to the nearest 0.001) = 1 Adjustment Factor xx The Call Price will be adjusted to: Adjusted Call Price (which shall be rounded to the nearest 0.001) = 1 Adjustment Factor xy Where: S OD Adjustment Factor = S OD CD E: Existing Entitlement immediately prior to the relevant Cash Distribution X: Existing Strike Price immediately prior to the relevant Cash Distribution Y: Existing Call Price immediately prior to the relevant Cash Distribution S: The closing price of a Share, as derived from the daily quotation sheet of the Stock Exchange on the Business Day immediately prior to the Dividend Adjustment Date OD: Amount of ordinary cash dividend per Share (applicable only if the date on which trading in the Shares becomes ex-entitlement in respect of the ordinary cash dividend is the same as the Dividend Adjustment Date) CD: Amount of the relevant Cash Distribution per Share (F) (G) Without prejudice to and notwithstanding any prior adjustment(s) made pursuant to the applicable terms and conditions, the Issuer may (but shall not be obliged to) make such other adjustments to the terms and conditions of the CBBCs as appropriate where any event (including the events as contemplated in the applicable terms and conditions) occurs and irrespective of, in substitution for, or in addition to the provisions contemplated in applicable terms and conditions, provided that such adjustment is: (a) not materially prejudicial to the interests of the Holders generally (without considering the circumstances of any individual Holder or the tax or other consequences of such adjustment in any particular jurisdiction); or (b) determined by the Issuer in good faith to be appropriate and commercially reasonable. The Issuer shall determine any adjustment or amendment and its determination shall be conclusive and binding on the Holders save in the case of manifest error. Any such adjustment or amendment shall be set out in a notice, which shall be given to the Holders in accordance with Condition 9 as soon as practicable after the determination thereof. 97

100 6 Purchase by the Issuer The Issuer and any of its affiliates may purchase CBBCs at any time on or after the date of their issue and any CBBCs which are so purchased may be surrendered for cancellation or offered from time to time in one or more transactions in the over-the-counter market or otherwise at prevailing market prices or in negotiated transactions, at the sole and absolute discretion of the Issuer or any such affiliate, as the case may be. 7 Global Certificate A global certificate (the Global Certificate ) representing the CBBCs will be deposited within CCASS and registered in the name of HKSCC Nominees Limited (or its successor) or another nominee of Hong Kong Securities Clearing Company Limited. The Global Certificate will not be exchangeable for definitive certificates. 8 Meeting of Holders; Modification (A) Meetings of Holders. Notices for convening meetings to consider any matter affecting the Holders interests will be given to the Holders in accordance with the provisions of Condition 9. Every question submitted to a meeting of the Holders shall be decided by poll. A meeting may be convened by the Issuer or by the Holders holding not less than 10 per cent. of the CBBCs for the time being remaining unexercised. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons (including any nominee appointed by the Holders) holding or representing not less than 25 per cent. of the CBBCs for the time being remaining unexercised, or at any adjourned meeting two or more persons (including any nominee appointed by the Holders) being or representing Holders whatever the number of CBBCs so held or represented. Extraordinary Resolution means a resolution passed at a duly convened meeting by not less than three-quarters of the votes cast by such Holders as, being entitled to do so, vote in person or by proxy. An Extraordinary Resolution passed at any meeting of the Holders shall be binding on all Holders, whether or not they are present at the meeting. Resolutions can be passed in writing without a meeting of the Holders being held if passed unanimously. Where the Holder is a clearing house recognised by the laws of Hong Kong or its nominee(s), it may authorise such person or person(s) as it thinks fit to act as its representative(s) or proxy(ies) at any Holders meeting provided that, if more than one person is so authorised, the authorisation or proxy form must specify the number of CBBCs in respect of which each such person is so authorised. Each person so authorised will be entitled to exercise the same powers and right, including the right to vote on a show of hands, on behalf of the recognised clearing house or its nominee(s) as that clearing house or its nominee(s) as if he was an individual Holder. (B) Modification. The Issuer may, without the consent of the Holders, effect any modification of the terms and conditions of the CBBCs or the Instrument which, in the opinion of the Issuer, is (i) not materially prejudicial to the interests of the Holders generally (without considering the circumstances of any individual Holder or the tax or other consequences of such modification in any particular jurisdiction); (ii) of a formal, minor or technical nature; (iii) made to correct a manifest error; or (iv) necessary in order to comply with 98

101 9 Notices mandatory provisions of the laws or regulations of Hong Kong. Any such modification shall be binding on the Holders and shall be notified to them by the Issuer as soon as practicable thereafter in accordance with Condition 9. All notices in English and Chinese to the Holders will be validly given if published on the website of the Hong Kong Exchanges and Clearing Limited. In such circumstances, the Issuer shall not be required to dispatch copies of the notice to the Holders. 10 Liquidation In the event of a liquidation or dissolution or winding up of the Company or the appointment of a liquidator, receiver or administrator or analogous person under applicable law in respect of the whole or substantially the whole of the undertaking, property or assets of the Company, all CBBCs will lapse and shall cease to be valid for any purpose. In the case of a voluntary liquidation, on the effective date of the resolution and, in the case of an involuntary liquidation or dissolution, on the date of the relevant court order or, in the case of the appointment of a liquidator or receiver or administrator or analogous person under applicable law in respect of the whole or substantially the whole of the Company s undertaking, property or assets, on the date when such appointment is effective but subject (in any such case) to any contrary mandatory requirement of law. 11 Delisting of Company (A) (B) (C) If at any time the Shares cease to be listed on the Stock Exchange, the Issuer shall give effect to these terms and conditions in such manner and make such adjustments to the rights attaching to the CBBCs as it shall, in its sole and absolute discretion, consider appropriate to ensure, so far as it is reasonably able to do so, that the interests of the Holders generally are not materially prejudiced as a consequence of such delisting (without considering the individual circumstances of the Holder or the tax or other consequences that may result in any particular jurisdiction). Without prejudice to the generality of Condition 11(A), where the Shares are or, upon the delisting, become, listed on any other stock exchange, these terms and conditions may, in the sole and absolute discretion of the Issuer, be amended to the extent necessary to allow for the substitution of that other stock exchange in place of the Stock Exchange and the Issuer may, without the consent of the Holders, make such adjustments to the entitlements of the Holders on exercise (including, if appropriate, by converting foreign currency amounts at prevailing market rates into amounts in the relevant currency) as it shall consider appropriate in the circumstances. Any adjustment, amendment or determination made by the Issuer pursuant to this Condition 11 shall be conclusive and binding on the Holders save in the case of manifest error. Notice of any adjustments or amendments shall be given to the Holders in accordance with Condition 9 as soon as practicable after they are determined. 12 Further Issues The Issuer shall be at liberty from time to time, without the consent of the Holders, to create and issue further callable bull/bear contracts, upon such terms as to issue price and otherwise as the Issuer may determine so as to form a single series with the CBBCs. 99

102 13 Illegality or Impracticability The Issuer is entitled to terminate the CBBCs if it determines in good faith and in a commercially reasonable manner that, for reasons beyond its control, it has become or it will become illegal or impracticable: (a) for it to perform its obligations under the CBBCs, in whole or in part as a result of: (i) (ii) the adoption of, or any change in, any relevant law or regulation (including any tax law); or the promulgation of, or any change in, the interpretation by any court, tribunal, governmental, administrative, legislative, regulatory or judicial authority or power with competent jurisdiction of any relevant law or regulation (including any tax law), (each of (i) and (ii), a Change in Law Event ); or (b) for it or any of its affiliates to maintain the Issuer s hedging arrangements with respect to the CBBCs due to a Change in Law Event. Upon the occurrence of a Change in Law Event, the Issuer will, if and to the extent permitted by the applicable law or regulation, pay to each Holder a cash amount that the Issuer determines in good faith and in a commercially reasonable manner to be the fair market value in respect of each CBBC held by such Holder immediately prior to such termination (ignoring such illegality or impracticability) less the cost to the Issuer of unwinding any related hedging arrangement as determined by the Issuer in its sole and absolute discretion. Payment will be made in such manner as shall be notified to the Holders in accordance with Condition Good Faith and Commercially Reasonable Manner Any exercise of discretion by the Issuer under these terms and conditions will be made in good faith and in a commercially reasonable manner. 15 Governing Law The CBBCs and the Instrument will be governed by and construed in accordance with the laws of the Hong Kong Special Administrative Region of the People s Republic of China ( Hong Kong ). The Issuer and the Holder (by its acquisition of the CBBCs) shall be deemed to have submitted for all purposes in connection with the CBBCs and the Instrument to the non-exclusive jurisdiction of the courts of Hong Kong. 16 Language In the event of any inconsistency between the English version and Chinese translation of these terms and conditions, the English version shall govern and prevail. Sponsor Standard Chartered Bank (Hong Kong) Limited 32/F, 4-4A Des Voeux Road Central Hong Kong 100

103 PART B TERMS AND CONDITIONS OF CASH-SETTLED CALLABLE BULL/BEAR CONTRACTS RELATING TO AN INDEX These master terms and conditions will, together with the supplemental provisions contained in the relevant supplemental listing document and subject to completion and amendment, be endorsed on the back of the relevant global certificate. The applicable supplemental listing document in relation to the issue of any series of CBBCs may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these master terms and conditions, replace or modify these master terms and conditions for the purpose of such series of CBBCs. Capitalised terms used in these master terms and conditions and not otherwise defined therein shall have the meaning given to them in the relevant supplemental listing document. 1 Form; Status; Transfer and Title (A) The callable bull/bear contracts or CBBCs (which expression shall, unless the context otherwise requires, include any further CBBCs issued pursuant to Condition 10) relating to the Index as published by the compiler of the Index (the Index Compiler ) are issued in registered form subject to and with the benefit of the instrument dated 25 June 2010 (the Instrument ), made by Standard Chartered Bank (the Issuer ). A copy of the Instrument is available for inspection at the offices of Standard Chartered Bank (Hong Kong) Limited (the Sponsor ) at 15th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong or such other place as notified pursuant to Condition 9 from time to time. The Holders (as hereinafter defined) are entitled to the benefit of, are bound by and are deemed to have notice of, all the provisions of the Instrument. (B) The settlement obligations of the Issuer in respect of the CBBCs represent general unsecured contractual obligations of the Issuer and of no other person which rank, and will rank, equally among themselves and pari passu with all other present and future unsecured and unsubordinated contractual obligations of the Issuer, except for obligations accorded preference by mandatory provisions of applicable law. CBBCs represent general contractual obligations of the Issuer, and are not, nor is it the intention (expressed, implicit or otherwise) of the Issuer to create by the issue of CBBCs deposit liabilities of the Issuer or a debt obligation of any kind. (C) (D) Transfers of CBBCs may be effected only in a Board Lot or integral multiples thereof in the Central Clearing and Settlement System ( CCASS ) in accordance with the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time. Each person who is for the time being shown in the register kept by or on behalf of the Issuer outside of Hong Kong as the holder shall be treated by the Issuer as the absolute owner and holder of the CBBCs (which shall be HKSCC Nominees Limited (or its successor) or another nominee of Hong Kong Securities Clearing Company Limited for so long as the CBBCs are accepted as eligible securities in CCASS). The expression Holder shall be construed accordingly. (E) Trading in CBBCs on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) shall be suspended after the occurrence of a Mandatory Call Event in accordance with the rules of the Stock Exchange. None of the Stock Exchange, the Issuer, the Index Compiler nor any of its affiliates shall have any responsibility towards the Holder for any losses suffered in connection with the determination of a Mandatory 101

104 Call Event, whether or not such losses are a result of the suspension of trading of the CBBCs, notwithstanding that such suspension may have occurred as a result of an error in the determination of the event. 2 CBBCs Rights and Exercise Expenses (A) (B) Every Board Lot of the CBBCs entitles the Holder to payment of the Cash Settlement Amount (as defined in Condition 3(D)), if any, minus the determined Exercise Expenses (as defined in Condition 3(D)). If the Cash Settlement Amount is equal to or less than the determined Exercise Expenses, no amount is payable by the Issuer. The Holder will be required to pay the Exercise Expenses in respect of the Mandatory Call Termination or Automatic Exercise of the CBBCs. To effect such payment, an amount equivalent to the Exercise Expenses will be deducted by the Issuer from the Cash Settlement Amount in accordance with Condition 3(D). Any Exercise Expenses which have not been determined by the Issuer after the end of the MCE Valuation Period or on the Valuation Date (as the case may be) shall be notified as soon as practicable after determination thereof by the Issuer to the Holder and shall be paid by the Holder forthwith in immediately available funds no later than 3 Business Days after the Holder receives notice of any unpaid Exercise Expenses. (C) An irrevocable authorisation is deemed to be given to the Issuer to deduct any determined Exercise Expenses from the Cash Settlement Amount. 3 Mandatory Call Termination and Automatic Exercise (A) Upon the occurrence of a Mandatory Call Event, the CBBCs will terminate automatically on the day on which the Mandatory Call Event occurs ( Mandatory Call Termination ) and the Issuer will give notice of the occurrence of the Mandatory Call Event to the Holders in accordance with Condition 9. Trading in the CBBCs will be suspended immediately upon the occurrence of a Mandatory Call Event and all Post MCE Trades will be cancelled and will not be recognised by the Stock Exchange or the Issuer. Whereas: Business Day means a day (excluding Saturdays) on which the Stock Exchange is scheduled to open for dealings in Hong Kong and banks are open for business in Hong Kong; CCASS Settlement Day has the meaning ascribed to the term Settlement Day in the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time, subject to such modification and amendment prescribed by Hong Kong Securities Clearing Company Limited from time to time; Index Business Day means a day on which the Index Exchange is scheduled to open for trading for its regular trading sessions; Mandatory Call Event occurs when the Spot Level of the Index at any time during an Index Business Day in the Observation Period is (in the case of a series of bull CBBCs) at or below the Call Level or (in the case of a series of bear CBBCs) at or above the Call Level; Observation Period means the period from and including the Observation Commencement Date to and including the Trading Day immediately preceding the Expiry Date; 102

105 Post MCE Trades has the meaning given to it in the relevant Supplemental Listing Document, subject to such modification and amendment prescribed by the Stock Exchange from time to time; Spot Level means, unless otherwise specified in the relevant Supplemental Listing Document, the spot level of the Index as compiled and published by the Index Compiler; and Trading Day means any day on which the Stock Exchange is scheduled to open for trading for its regular trading sessions. (B) (C) (D) Any CBBCs with respect to which a Mandatory Call Event has not occurred during the Observation Period shall be deemed to be automatically exercised on the Expiry Date (the Automatic Exercise ). Following the occurrence of a Mandatory Call Event or the Expiry Date, the Global Certificate will be cancelled. Following a Mandatory Call Termination or the Automatic Exercise in accordance with Conditions 3(A) or 3(B), the Issuer will as soon as practicable and on a day no later than the Settlement Date in accordance with these terms and conditions procure payment of the aggregate Cash Settlement Amount minus the determined Exercise Expenses for all CBBCs terminated or deemed automatically exercised in favour of the Holder as appearing in the register kept by or on behalf of the Issuer. Any payment of the Cash Settlement Amount made pursuant to this Condition 3(D) shall be delivered at the risk and expense of the Holder to the Holder as recorded on the register, or such bank, broker or agent in Hong Kong (if any) as directed by the Holder. Whereas: Cash Settlement Amount per Board Lot means, subject to adjustment as provided in Condition 5, an amount calculated by the Issuer in accordance with the following formula (and if applicable, either (i) converted into the Settlement Currency at the Exchange Rate or, as the case may be, (ii) converted into the Interim Currency at the First Exchange Rate and then (if applicable) converted into the Settlement Currency at the Second Exchange Rate): (i) if no Mandatory Call Event has occurred: (a) in the case of a series of bull CBBCs: Cash Settlement Amount per Board Lot = (Closing Level Strike Level) x one Board Lot x Index Currency Amount Divisor (b) in the case of a series of bear CBBCs: Cash Settlement Amount per Board Lot = (Strike Level Closing Level) x one Board Lot x Index Currency Amount Divisor 103

106 (ii) following a Mandatory Call Event: (a) (b) in the case of a series of Category R CBBCs, the Residual Value; or in the case of a series of Category N CBBCs, zero. Provided that if the relevant formula above produces an amount that is equal to or less than the determined Exercise Expenses, then no amount shall be payable. The aggregate Cash Settlement Amount payable to a Holder shall be expressed in the Settlement Currency; Closing Level has the meaning given to it in the relevant Supplemental Listing Document, subject to any adjustment in accordance with Condition 5; Exercise Expenses means all taxes, duties and/or expenses, including all applicable depository, transaction or exercise charges, stamp duties, stamp duty reserve tax, issue, registration, securities transfer and/or other taxes or duties, arising in connection with (i) the Mandatory Call Termination (not applicable in the case of Category N CBBCs) or Automatic Exercise of such CBBC and/or (ii) any payment due following Mandatory Call Termination or Automatic Exercise in respect of such CBBC; Market Disruption Event means: (a) the occurrence or existence on any Trading Day or Index Business Day during the one-half hour period that ends at the close of trading on the Index Exchange, of any of: (i) (ii) the suspension of or material limitation on the trading of a material number of constituent securities that comprise the Index; the suspension of or material limitation on the trading of options or futures contracts relating to the Index on any exchanges on which such contracts are traded; or (iii) the imposition of any exchange controls in respect of any currencies involved in determining the Cash Settlement Amount. For the purposes of this paragraph (a), (X) a limitation of the number of hours or days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of any relevant exchange, and (Y) a limitation on trading imposed by reason of movements in price exceeding the levels permitted by any relevant exchange will constitute a Market Disruption Event; (b) (where the Index Exchange is the Stock Exchange) the issuance of the tropical cyclone warning signal number 8 or above or the issuance of a BLACK rainstorm signal on any day which either (i) results in the Stock Exchange being closed for trading for an entire day; or (ii) results in the Stock Exchange being closed prior to its regular time for close of trading for the relevant day (for the avoidance of doubt, in the case when the Stock Exchange is scheduled to open for the morning trading session only, closed prior to its regular time for close of trading for the morning session), PROVIDED THAT there shall be no Market Disruption Event solely by reason of the Stock Exchange opening for trading later than its regular time for the opening of trading on any day as a result of the tropical cyclone warning signal number 8 or above or the BLACK rainstorm signal having been issued; 104

107 (c) a limitation or closure of the Index Exchange due to any other unforeseen circumstances; or (d) any circumstances beyond the control of the Issuer in which the Closing Level or, if applicable, the Exchange Rate, the First Exchange Rate or the Second Exchange Rate (as the case may be) cannot be determined by the Issuer in the manner set out in these terms and conditions or in such other manner as the Issuer considers appropriate at such time after taking into account all the relevant circumstances; Maximum Index Level means the highest Spot Level of the Index during the MCE Valuation Period; MCE Valuation Period means: (a) in respect of an Index Exchange located in Hong Kong, the period commencing from and including the moment upon which the Mandatory Call Event occurs (the trading session on the Index Exchange during which the Mandatory Call Event occurs is the 1st Session ) and up to the end of the trading session on the Index Exchange immediately following the 1st Session ( 2nd Session ) unless, in the determination of the Issuer in its good faith, the 2nd Session for any reason (including, without limitation, a Market Disruption Event occurring and subsisting in the 2nd Session) does not contain any continuous period of 1 hour or more than 1 hour during which Spot Levels are available, the MCE Valuation Period shall be extended to the end of the subsequent trading session on the Index Exchange following the 2nd Session during which Spot Levels are available for a continuous period of at least 1 hour notwithstanding the existence or continuance of a Market Disruption Event in such postponed trading session, unless the Issuer determines in its good faith that each trading session on each of the four Index Business Days immediately following the date on which the Mandatory Call Event occurs does not contain any continuous period of 1 hour or more than 1 hour during which Spot Levels are available. In that case: (i) (ii) the period commencing from the 1st Session up to, and including, the last trading session of the fourth Index Business Day on the Index Exchange immediately following the day on which the Mandatory Call Event occurs shall be deemed to be the MCE Valuation Period; and the Issuer shall determine the Maximum Index Level or the Minimum Index Level (as the case may be) having regard to the then prevailing market conditions, the last reported Spot Level and such other factors as the Issuer may determine to be relevant in its good faith. For the avoidance of doubt, all Spot Levels available throughout the extended MCE Valuation Period shall be taken into account to determine the Maximum Index Level or the Minimum Index Level (as the case may be) for the calculation of the Residual Value. For the purposes of this definition, (a) (b) the pre-opening session, the morning session and, in the case of half day trading, the closing auction session (if applicable) of the same day; and the afternoon session and the closing auction session (if applicable) of the same day, 105

108 shall each be considered as one trading session only; or (b) in respect of an Index Exchange located outside Hong Kong, the period specified in the relevant Supplemental Listing Document; Minimum Index Level means the lowest Spot Level of the Index during the MCE Valuation Period; Residual Value per Board Lot means, subject to adjustment as provided in Condition 5, an amount calculated by the Issuer in accordance with the following formula (and if applicable, either (i) converted into the Settlement Currency at the Exchange Rate or, as the case may be, (ii) converted into the Interim Currency at the First Exchange Rate and then (if applicable) converted into the Settlement Currency at the Second Exchange Rate): (i) in the case of a series of bull CBBCs: Residual Value per Board Lot = (Minimum Index Level Strike Level) x one Board Lot x Index Currency Amount Divisor (ii) in the case of a series of bear CBBCs: Residual Value per Board Lot = (Strike Level Maximum Index Level) x one Board Lot x Index Currency Amount Divisor Settlement Currency means the currency specified in the relevant Supplemental Listing Document; and Settlement Date means the third CCASS Settlement Day after (i) the end of the MCE Valuation Period or (ii) the later of: (a) the Expiry Date; and (b) the day on which the Closing Level is determined in accordance with these terms and conditions (as the case may be). Valuation Date means the date specified as such in the relevant Supplemental Listing Document. If the Issuer determines, in its sole and absolute discretion, that a Market Disruption Event has occurred on the Valuation Date, then the Issuer shall determine the Closing Level on the basis of its good faith estimate of the Closing Level that would have prevailed on that day but for the occurrence of the Market Disruption Event, provided that the Issuer, if applicable, may, but shall not be obliged to, determine such Closing Level by having regard to the manner in which futures contracts relating to the Index are calculated. (E) If as a result of an event beyond the control of the Issuer, it is not possible for the Issuer to procure payment electronically through CCASS by crediting the relevant bank account of the Holder on the original Settlement Date ( Settlement Disruption Event ), the Issuer shall use its reasonable endeavours to procure payment electronically through CCASS by crediting the relevant bank account of the Holder as soon as reasonably practicable after the original Settlement Date. The Issuer will not be liable to the Holder for any interest in respect of the amount due or any loss or damage that such Holder may suffer as a result of the existence of a Settlement Disruption Event, nor shall the Issuer be liable under any circumstances for any acts or defaults of CCASS in relation to the performance of its duties in relation to the CBBCs. 106

109 (F) These terms and conditions shall not be construed so as to give rise to any relationship of agency or trust between the Stock Exchange, the Issuer, the Index Compiler, or its agent (including the Sponsor) or nominee and the Holder and neither the Stock Exchange, the Issuer, the Index Compiler, nor its agent (including the Sponsor) or nominee shall owe any duty of a fiduciary nature to the Holder. 4 Sponsor None of the Stock Exchange, the Issuer, or the Index Compiler shall have any responsibility for any errors or omissions in the calculation and determination of any variables published by it or a third party and used in any calculation or determination made pursuant to these terms and conditions (including the determination as to the occurrence of the Mandatory Call Event) or in the calculation of the Cash Settlement Amount arising from such errors or omissions. The Issuer s obligations to pay the Cash Settlement Amount shall be discharged by payment in accordance with Condition 3(D) above. (A) (B) The Sponsor will not assume any obligation or duty to or any relationship or agency or trust for the Holder. The Issuer reserves the right, subject to the appointment of a successor, at any time to vary or terminate the appointment of the Sponsor and to appoint another sponsor provided that it will at all times maintain a sponsor in Hong Kong for so long as the CBBCs are listed on the Stock Exchange. Notice of any such termination or appointment of the Sponsor will be given to the Holders in accordance with Condition 9. 5 Adjustments to the Index (A) (B) If the Index is (i) not calculated and announced by the Index Compiler but is calculated and published by a successor to the Index Compiler (the Successor Index Compiler ) acceptable to the Issuer or (ii) replaced by a successor index using, in the determination of the Issuer, the same or a substantially similar formula for and method of calculation as used in the calculation of the Index, then the Index will be deemed to be the index so calculated and announced by the Successor Index Compiler or that successor index, as the case may be. If (i) on or prior to the Valuation Date, the Index Compiler or (if applicable) the Successor Index Compiler makes a material change in the formula for or the method of calculating the Index or in any other way materially modifies the Index (other than a modification prescribed in that formula or method to maintain the Index in the event of changes in constituent stock, contracts or commodities and other routine events), or (ii) on the Valuation Date, the Index Compiler or (if applicable) the Successor Index Compiler fails to calculate and publish the Index (other than as a result of a Market Disruption Event), then the Issuer shall determine the Closing Level using, in lieu of the level of the Index calculated for the purpose of final settlement of the contract specified in the relevant Supplemental Listing Document, the level for the Index as at the Valuation Date as determined by the Issuer in accordance with the formula for and method of calculating the Index last in effect prior to the change or failure, but using only those securities/commodities that comprised the Index immediately prior to that change or failure (other than those securities that have since ceased to be listed on the relevant exchange). 107

110 (C) (D) Without prejudice to and notwithstanding any prior adjustment(s) made pursuant to the applicable terms and conditions, the Issuer may (but shall not be obliged to) make such other adjustments to the terms and conditions of the CBBCs as appropriate where any event (including the events as contemplated in the applicable terms and conditions) occurs and irrespective of, in substitution for, or in addition to the provisions contemplated in applicable terms and conditions, provided that such adjustment is: (a) not materially prejudicial to the interests of the Holders generally (without considering the circumstances of any individual Holder or the tax or other consequences of such adjustment in any particular jurisdiction); or (b) determined by the Issuer in good faith to be appropriate and commercially reasonable. All determinations made by the Issuer pursuant hereto will be conclusive and binding on the Holders. The Issuer will give, or procure that there is given, notice as soon as practicable of any determinations by publication in accordance with Condition 9. 6 Purchase by the Issuer The Issuer and any of its affiliates may purchase CBBCs at any time on or after the date of their issue and any CBBCs which are so purchased may be surrendered for cancellation or offered from time to time in one or more transactions in the over-the-counter market or otherwise at prevailing market prices or in negotiated transactions, at the sole and absolute discretion of the Issuer or any such affiliate, as the case may be. 7 Global Certificate A global certificate (the Global Certificate ) representing the CBBCs will be deposited within CCASS and registered in the name of HKSCC Nominees Limited (or its successor) or another nominee of Hong Kong Securities Clearing Company Limited. The Global Certificate will not be exchangeable for definitive certificates. 8 Meeting of Holders; Modification (a) Meetings of Holders. Notices for convening meetings to consider any matter affecting the Holders interests will be given to the Holders in accordance with the provisions of Condition 9. Every question submitted to a meeting of the Holders shall be decided by poll. A meeting may be convened by the Issuer or by the Holders holding not less than 10 per cent. of the CBBCs for the time being remaining unexercised. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons (including any nominee appointed by the Holders) holding or representing not less than 25 per cent. of the CBBCs for the time being remaining unexercised, or at any adjourned meeting two or more persons (including any nominee appointed by the Holders) being or representing Holders whatever the number of CBBCs so held or represented. Extraordinary Resolution means a resolution passed at a duly convened meeting by not less than three-quarters of the votes cast by such Holders as, being entitled to do so, vote in person or by proxy. An Extraordinary Resolution passed at any meeting of the Holders shall be binding on all the Holders, whether or not they are present at the meeting. Resolutions can be passed in writing without a meeting of the Holders being held if passed unanimously. 108

111 Where the Holder is a clearing house recognised by the laws of Hong Kong or its nominee(s), it may authorise such person or person(s) as it thinks fit to act as its representative(s) or proxy(ies) at any Holders meeting provided that, if more than one person is so authorised, the authorisation or proxy form must specify the number of CBBCs in respect of which each such person is so authorised. Each person so authorised will be entitled to exercise the same powers and right, including the right to vote on a show of hands, on behalf of the recognised clearing house or its nominee(s) as that clearing house or its nominee(s) as if he was an individual Holder. (b) Modification. The Issuer may, without the consent of the Holders, effect any modification of the terms and conditions of the CBBCs or the Instrument which, in the opinion of the Issuer, is (i) not materially prejudicial to the interests of the Holders generally (without considering the circumstances of any individual Holder or the tax or other consequences of such modification in any particular jurisdiction); (ii) of a formal, minor or technical nature; (iii) made to correct a manifest error; or (iv) necessary in order to comply with mandatory provisions of the laws or regulations of Hong Kong. Any such modification shall be binding on the Holders and shall be notified to them by the Issuer as soon as practicable thereafter in accordance with Condition 9. 9 Notices All notices in English and Chinese to the Holders will be validly given if published on the website of the Hong Kong Exchanges and Clearing Limited. In such circumstances, the Issuer shall not be required to dispatch copies of the notice to the Holders. 10 Further Issues The Issuer shall be at liberty from time to time, without the consent of the Holders, to create and issue further callable bull/bear contracts, upon such terms as to issue price and otherwise as the Issuer may determine so as to form a single series with the CBBCs. 11 Illegality or Impracticability The Issuer is entitled to terminate the CBBCs if it determines in good faith and in a commercially reasonable manner that, for reasons beyond its control, it has become or it will become illegal or impracticable: (a) for it to perform its obligations under the CBBCs, in whole or in part as a result of: (i) (ii) the adoption of, or any change in, any relevant law or regulation (including any tax law); or the promulgation of, or any change in, the interpretation by any court, tribunal, governmental, administrative, legislative, regulatory or judicial authority or power with competent jurisdiction of any relevant law or regulation (including any tax law), (each of (i) and (ii), a Change in Law Event ); or (b) for it or any of its affiliates to maintain the Issuer s hedging arrangements with respect to the CBBCs due to a Change in Law Event. Upon the occurrence of a Change in Law Event, the Issuer will, if and to the extent permitted by the applicable law or regulation, pay to each Holder a cash amount that the Issuer determines in good faith and in a commercially reasonable manner to be the fair market value in respect of each 109

112 CBBC held by such Holder immediately prior to such termination (ignoring such illegality or impracticability) less the cost to the Issuer of unwinding any related hedging arrangement as determined by the Issuer in its sole and absolute discretion. Payment will be made in such manner as shall be notified to the Holders in accordance with Condition Good Faith and Commercially Reasonable Manner Any exercise of discretion by the Issuer under these terms and conditions will be made in good faith and in a commercially reasonable manner. 13 Governing Law The CBBCs and the Instrument will be governed by and construed in accordance with the laws of the Hong Kong Special Administrative Region of the People s Republic of China ( Hong Kong ). The Issuer and the Holder (by its acquisition of the CBBCs) shall be deemed to have submitted for all purposes in connection with the CBBCs and the Instrument to the non-exclusive jurisdiction of the courts of Hong Kong. 14 Language In the event of any inconsistency between the English version and Chinese translation of these terms and conditions, the English version shall govern and prevail. Sponsor Standard Chartered Bank (Hong Kong) Limited 32/F, 4-4A Des Voeux Road Central Hong Kong 110

113 PART C TERMS AND CONDITIONS OF CASH-SETTLED CALLABLE BULL/BEAR CONTRACTS RELATING TO THE UNITS OF A FUND OR TRUST These master terms and conditions will, together with the supplemental provisions contained in the relevant supplemental listing document and subject to completion and amendment, be endorsed on the back of the relevant global certificate. The applicable supplemental listing document in relation to the issue of any series of CBBCs may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these master terms and conditions, replace or modify these master terms and conditions for the purpose of such series of CBBCs. Capitalised terms used in these master terms and conditions and not otherwise defined therein shall have the meaning given to them in the relevant supplemental listing document. 1 Form; Status; Transfer and Title (A) The callable bull/bear contracts or CBBCs (which expression shall, unless the context otherwise requires, include any further CBBCs issued pursuant to Condition 12) relating to the Units of the Fund or Trust are issued in registered form subject to and with the benefit of the instrument dated 25 June 2010 (the Instrument ) by Standard Chartered Bank (the Issuer ). A copy of the Instrument is available for inspection at the offices of Standard Chartered Bank (Hong Kong) Limited (the Sponsor ) at 15th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong or such other place as notified pursuant to Condition 9 from time to time. The Holders (as hereinafter defined) are entitled to the benefit of, are bound by and are deemed to have notice of, all the provisions of the Instrument. (B) The settlement obligations of the Issuer in respect of the CBBCs represent general unsecured contractual obligations of the Issuer and of no other person which rank, and will rank, equally among themselves and pari passu with all other present and future unsecured and unsubordinated contractual obligations of the Issuer, except for obligations accorded preference by mandatory provisions of applicable law. CBBCs represent general contractual obligations of the Issuer, and are not, nor is it the intention (expressed, implicit or otherwise) of the Issuer to create by the issue of CBBCs deposit liabilities of the Issuer or a debt obligation of any kind. (C) (D) Transfers of CBBCs may be effected only in a Board Lot or integral multiples thereof in the Central Clearing and Settlement System ( CCASS ) in accordance with the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time. Each person who is for the time being shown in the register kept by or on behalf of the Issuer outside of Hong Kong as the holder shall be treated by the Issuer as the absolute owner and holder of the CBBCs (which shall be HKSCC Nominees Limited (or its successor) or another nominee of Hong Kong Securities Clearing Company Limited for so long as the CBBCs are accepted as eligible securities in CCASS). The expression Holder shall be construed accordingly. (E) Trading in CBBCs on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) shall be suspended after the occurrence of a Mandatory Call Event in accordance with the rules of the Stock Exchange. None of the Stock Exchange, the Issuer nor any of its affiliates shall have any responsibility towards the Holder for any losses suffered in connection with the determination of a Mandatory Call Event, whether or not 111

114 such losses are a result of the suspension of trading of the CBBCs, notwithstanding that such suspension may have occurred as a result of an error in the determination of the event. 2 CBBCs Rights and Exercise Expenses (A) (B) Every Board Lot of the CBBCs entitles the Holder to payment of the Cash Settlement Amount (as defined in Condition 3(D)), if any, minus the determined Exercise Expenses (as defined in Condition 3(D)). If the Cash Settlement Amount is equal to or less than the determined Exercise Expenses, no amount is payable by the Issuer. The Holder will be required to pay the Exercise Expenses in respect of a Mandatory Call Termination or Automatic Exercise of the CBBCs. To effect such payment, an amount equivalent to the Exercise Expenses will be deducted by the Issuer from the Cash Settlement Amount in accordance with Condition 3(D). Any Exercise Expenses which have not been determined by the Issuer after the end of the MCE Valuation Period or on the Valuation Date (as the case may be) shall be notified as soon as practicable after determination thereof by the Issuer to the Holder and shall be paid by the Holder forthwith in immediately available funds no later than 3 Business Days after the Holder receives notice of any unpaid Exercise Expenses. (C) An irrevocable authorisation is deemed to be given to the Issuer to deduct any determined Exercise Expenses from the Cash Settlement Amount. 3 Mandatory Call Termination and Automatic Exercise (A) Upon the occurrence of a Mandatory Call Event, the CBBCs will terminate automatically on the day on which the Mandatory Call Event occurs ( Mandatory Call Termination ) and the Issuer will give notice of the occurrence of the Mandatory Call Event to the Holders in accordance with Condition 9. Trading in the CBBCs will be suspended immediately upon the occurrence of a Mandatory Call Event and all Post MCE Trades will be cancelled and will not be recognised by the Stock Exchange or the Issuer. Whereas: Business Day means a day (excluding Saturdays) on which the Stock Exchange is scheduled to open for dealings in Hong Kong and banks are open for business in Hong Kong; CCASS Settlement Day has the meaning ascribed to the term Settlement Day in the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time, subject to such modification and amendment prescribed by Hong Kong Securities Clearing Company Limited from time to time; Mandatory Call Event occurs when the Spot Price of the Units at any time during a Trading Day in the Observation Period is (in the case of a series of bull CBBCs) at or below the Call Price or (in the case of a series of bear CBBCs) at or above the Call Price; Observation Period means the period from and including the Observation Commencement Date to and including the Trading Day immediately preceding the Expiry Date; 112

115 Post MCE Trades has the meaning given to it in the relevant Supplemental Listing Document, subject to such modification and amendment prescribed by the Stock Exchange from time to time; Spot Price means: (i) (ii) in respect of a continuous trading session of the Stock Exchange, the price per Unit concluded by means of automatic order matching on the Stock Exchange as reported in the official real-time dissemination mechanism for the Stock Exchange during such continuous trading session in accordance with the Rules and Regulations of the Stock Exchange prescribed by the Stock Exchange from time to time ( Trading Rules ), excluding direct business (as defined in the Trading Rules); and in respect of a pre-opening session or a closing auction session (if any) of the Stock Exchange, as the case may be, the final Indicative Equilibrium Price (as defined in the Trading Rules) of the Unit (if any) calculated at the end of the pre-order matching period of such pre-opening session or closing auction session (if any), as the case may be, in accordance with the Trading Rules, excluding direct business (as defined in the Trading Rules), subject to such modification and amendment prescribed by the Stock Exchange from time to time; and Trading Day means any day on which the Stock Exchange is scheduled to open for trading for its regular trading sessions. (B) (C) (D) Any CBBCs with respect to which a Mandatory Call Event has not occurred during the Observation Period shall be deemed to be automatically exercised on the Expiry Date (the Automatic Exercise ). Following the occurrence of a Mandatory Call Event or the Expiry Date, the Global Certificate will be cancelled. Following a Mandatory Call Termination or the Automatic Exercise in accordance with Conditions 3(A) or 3(B), the Issuer will as soon as practicable and on a day no later than the Settlement Date in accordance with these terms and conditions procure payment of the aggregate Cash Settlement Amount minus the determined Exercise Expenses for all CBBCs terminated or deemed automatically exercised in favour of the Holder as appearing in the register kept by or on behalf of the Issuer. Any payment of the Cash Settlement Amount made pursuant to this Condition 3(D) shall be delivered at the risk and expense of the Holder to the Holder as recorded on the register, or such bank, broker or agent in Hong Kong (if any) as directed by the Holder. 113

116 Whereas: Cash Settlement Amount per Board Lot means, subject to adjustment as provided in Condition 5, an amount determined by the Issuer in accordance with the following formula: (i) if no Mandatory Call Event has occurred: (a) in the case of a series of bull CBBCs: Cash Settlement Amount per Board Lot = Entitlement x (Closing Price Strike Price) x one Board Lot Number of CBBC(s) per Entitlement (b) in the case of a series of bear CBBCs: Cash Settlement Amount per Board Lot = Entitlement x (Strike Price Closing Price) x one Board Lot Number of CBBC(s) per Entitlement (ii) following a Mandatory Call Event: (a) (b) in the case of a series of Category R CBBCs, the Residual Value; or in the case of a series of Category N CBBCs, zero; Provided that if the relevant formula above produces an amount that is equal to or less than the determined Exercise Expenses, then no amount shall be payable. The aggregate Cash Settlement Amount payable to a Holder shall be expressed in the Settlement Currency; Closing Price shall be the closing price of one Unit (as derived from the daily quotation sheet of the Stock Exchange, subject to any adjustments to such closing price as may be necessary to reflect any capitalisation, rights issue, distribution or the like) on the Valuation Date; Entitlement means such number of Units to which the CBBC relates, as specified in the relevant Supplemental Listing Document; Exercise Expenses means all taxes, duties and/or expenses, including all applicable depository, transaction or exercise charges, stamp duties, stamp duty reserve tax, issue, registration, securities transfer and/or other taxes or duties, arising in connection with (i) the Mandatory Call Termination (not applicable in the case of Category N CBBCs) or Automatic Exercise of such CBBC and/or (ii) any payment due following Mandatory Call Termination or Automatic Exercise in respect of such CBBC; Market Disruption Event means: (i) the occurrence or existence on any Trading Day during the one-half hour period that ends at the close of trading of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Stock Exchange or otherwise) on the Stock Exchange in (a) the Units; or (b) any options or futures contracts relating to the Units if, in any such case, that suspension or limitation is, in the determination of the Issuer, material; 114

117 (ii) the issuance of the tropical cyclone warning signal number 8 or above or the issuance of a BLACK rainstorm signal on any day which either (i) results in the Stock Exchange being closed for dealings for an entire day; or (ii) results in the Stock Exchange being closed prior to its regular time for close of trading for the relevant day (for the avoidance of doubt, in the case when the Stock Exchange is scheduled to open for the morning trading session only, closed prior to its regular time for close of trading for the morning session), PROVIDED THAT there shall be no Market Disruption Event solely by reason of the Stock Exchange opening for trading later than its regular time for the opening of trading on any day as a result of the tropical cyclone warning signal number 8 or above or the BLACK rainstorm signal having been issued; or (iii) a limitation or closure of the Stock Exchange due to any other unforeseen circumstances; Maximum Trade Price means the highest Spot Price of the Units during the MCE Valuation Period; MCE Valuation Period means the period commencing from and including the moment upon which the Mandatory Call Event occurs (the trading session on the Stock Exchange during which the Mandatory Call Event occurs is the 1st Session ) and up to the end of the trading session on the Stock Exchange immediately following the 1st Session ( 2nd Session ) unless, in the determination of the Issuer in its good faith, the 2nd Session for any reason (including, without limitation, a Market Disruption Event occurring and subsisting in the 2nd Session) does not contain any continuous period of 1 hour or more than 1 hour during which trading in the Units is permitted on the Stock Exchange with no limitation imposed, the MCE Valuation Period shall be extended to the end of the subsequent trading session following the 2nd Session during which trading in the Units is permitted on the Stock Exchange with no limitation imposed for a continuous period of at least 1 hour notwithstanding the existence or continuance of a Market Disruption Event in such postponed trading session, unless the Issuer determines in its good faith that each trading session on each of the four Trading Days immediately following the date on which the Mandatory Call Event occurs does not contain any continuous period of 1 hour or more than 1 hour during which trading in the Units is permitted on the Stock Exchange with no limitation imposed. In that case: (i) (ii) the period commencing from the 1st Session up to, and including, the last trading session on the Stock Exchange of the fourth Trading Day immediately following the day on which the Mandatory Call Event occurs shall be deemed to be the MCE Valuation Period; and the Issuer shall determine the Maximum Trade Price or the Minimum Trade Price (as the case may be) having regard to the then prevailing market conditions, the last reported Spot Price and such other factors as the Issuer may determine to be relevant in its good faith. For the avoidance of doubt, all Spot Prices available throughout the extended MCE Valuation Period shall be taken into account to determine the Maximum Trade Price or the Minimum Trade Price (as the case may be) for the calculation of the Residual Value. For the purposes of this definition, (a) the pre-opening session, the morning session and, in the case of half day trading, the closing auction session (if applicable) of the same day; and 115

118 (b) the afternoon session and the closing auction session (if applicable) of the same day, shall each be considered as one trading session only; Minimum Trade Price means the lowest Spot Price of the Units during the MCE Valuation Period; Residual Value per Board Lot means, subject to adjustment as provided in Condition 5: (i) in the case of a series of bull CBBCs: Residual Value per Board Lot = Entitlement x (Minimum Trade Price Strike Price) x one Board Lot Number of CBBC(s) per Entitlement (ii) in the case of a series of bear CBBCs: Residual Value per Board Lot = Entitlement x (Strike Price Maximum Trade Price) x one Board Lot Number of CBBC(s) per Entitlement Settlement Currency means the currency specified in the relevant Supplemental Listing Document; and Settlement Date means the third CCASS Settlement Day after (i) the end of the MCE Valuation Period or (ii) the later of: (a) the Expiry Date; and (b) the day on which the Closing Price is determined in accordance with these terms and conditions (as the case may be). Valuation Date means the Trading Day immediately preceding the Expiry Date. If the Issuer determines, in its sole and absolute discretion, that a Market Disruption Event has occurred on the Valuation Date, then the Valuation Date shall be the first succeeding Trading Day on which the Issuer determines that there is no Market Disruption Event, unless the Issuer determines that there is a Market Disruption Event occurring on each of the four Trading Days immediately following the original date which (but for the Market Disruption Event) would have been the Valuation Date. In that case: (a) the fourth Trading Day immediately following the original date shall be deemed to be the Valuation Date (regardless of the Market Disruption Event); and (b) the Issuer shall determine the Closing Price having regard to the then prevailing market conditions, the last reported trading price of the Unit on the Stock Exchange and such other factors as the Issuer determines to be relevant. (E) If as a result of an event beyond the control of the Issuer, it is not possible for the Issuer to procure payment electronically through CCASS by crediting the relevant bank account of the Holder on the original Settlement Date ( Settlement Disruption Event ), the Issuer shall use its reasonable endeavours to procure payment electronically through CCASS by crediting the relevant bank account of the Holder as soon as reasonably practicable after the original Settlement Date. The Issuer will not be liable to the Holder for any interest in respect of the amount due or any loss or damage that such Holder may suffer as a result of the existence of a Settlement Disruption Event, nor shall the Issuer be liable under any circumstances for any acts or defaults of CCASS in relation to the performance of its duties in relation to the CBBCs. 116

119 (F) These terms and conditions shall not be construed so as to give rise to any relationship of agency or trust between the Stock Exchange, the Issuer or its agent (including the Sponsor) or nominee and the Holder and neither the Stock Exchange, the Issuer nor its agent (including the Sponsor) or nominee shall owe any duty of a fiduciary nature to the Holder. 4 Sponsor None of the Stock Exchange or the Issuer shall have any responsibility for any errors or omissions in the calculation and determination of any variables published by it or a third party and used in any calculation or determination made pursuant to these terms and conditions (including the determination as the occurrence of the Mandatory Call Event) or in the calculation of the Cash Settlement Amount arising from such errors or omissions. The Issuer s obligations to pay the Cash Settlement Amount shall be discharged by payment in accordance with Condition 3(D) above. (A) (B) The Sponsor will not assume any obligation or duty to or any relationship or agency or trust for the Holder. The Issuer reserves the right, subject to the appointment of a successor, at any time to vary or terminate the appointment of the Sponsor and to appoint another sponsor provided that it will at all times maintain a sponsor in Hong Kong for so long as the CBBCs are listed on the Stock Exchange. Notice of any such termination or appointment of the Sponsor will be given to the Holder in accordance with Condition 9. 5 Adjustments Adjustments may be made by the Issuer to the terms of the CBBCs (including, but not limited to (i) the Strike Price, (ii) the Call Price and/or (iii) the Entitlement) on the basis of the following provisions: (A) (i) If and whenever the Fund or Trust shall, by way of Rights (as defined below), offer new Units for subscription at a fixed subscription price to the holders of existing Units pro rata to existing holdings (a Rights Offer ), the Strike Price, the Call Price and the Entitlement shall be adjusted on the Business Day on which the trading in the Units of the Fund or Trust becomes ex-entitlement in accordance with the following formulae: The Entitlement will be adjusted to: The Strike Price will be adjusted to: Adjusted Entitlement = Adjustment Factor x E Adjusted Strike Price = The Call Price will be adjusted to: Adjusted Call Price = 1 Adjustment Factor 1 Adjustment Factor xx xy 117

120 Whereas: 1+M Adjustment Factor = 1 + (R/S) x M E: Existing Entitlement immediately prior to the Rights Offer X: Existing Strike Price immediately prior to the Rights Offer Y: Existing Call Price immediately prior to the Rights Offer S: Cum-rights Unit price, being the closing price of an existing Unit, as derived from the daily quotation sheet of the Stock Exchange on the last Business Day on which the Units are traded on a cum-rights basis R: Subscription price per new Unit specified in the Rights Offer plus an amount equal to any dividends or other benefits foregone to exercise the Right M: Number of new Units per existing Unit (whether a whole or a fraction) each holder of an existing Unit is entitled to subscribe or have For the purposes of these terms and conditions, Rights means the right(s) attached to each existing Unit or needed to acquire one new Unit (as the case may be) which are given to a holder of existing Units to subscribe at a fixed subscription price for new Units pursuant to the Rights Offer (whether by the exercise of one Right, a part of a Right or an aggregate number of Rights). (ii) The Adjusted Strike Price and the Adjusted Call Price (in each case rounded to the nearest 0.001) shall take effect on the same day that the Entitlement is adjusted. (B) (i) If and whenever the Fund or Trust shall make an issue of Units credited as fully paid to holders of Units generally by way of capitalisation of profits or reserves (and without any payment or other consideration being made or given by such holders) (a Bonus Issue ), the Entitlement, the Strike Price and the Call Price will be adjusted, subject to Condition 5(B)(iii), on the Business Day on which the trading in the Units of the Fund or Trust becomes ex-entitlement in accordance with the following formulae: The Entitlement will be adjusted to: The Strike Price will be adjusted to: Adjusted Entitlement = Adjustment Factor x E Adjusted Strike Price = The Call Price will be adjusted to: Adjusted Call Price = 1 Adjustment Factor 1 Adjustment Factor xx xy 118

121 Where: Adjustment Factor =1+M E: Existing Entitlement immediately prior to the Bonus Issue X: Existing Strike Price immediately prior to the Bonus Issue Y: Existing Call Price immediately prior to the Bonus Issue M: Number of additional Units (whether a whole or a fraction) received by a holder of existing Units for each Unit held prior to the Bonus Issue (ii) The Adjusted Strike Price and the Adjusted Call Price (which shall be rounded to the nearest 0.001) shall take effect on the same day that the Entitlement is adjusted. (iii) For the purposes of Conditions 5(A) and 5(B), the Issuer may determine that no adjustment will be made if the adjustment to the Entitlement is 1 per cent. or less of the Entitlement immediately prior to the adjustment, all as determined by the Issuer. (C) (D) If and whenever the Fund or Trust shall subdivide its Units or any class of its outstanding Units into a greater number of Units or consolidate the Units or any class of its outstanding Units into a smaller number of Units, the Entitlement shall be increased and the Strike Price and the Call Price shall be decreased (in the case of a subdivision) or the Entitlement shall be decreased and the Strike Price and the Call Price shall be increased (in the case of a consolidation) accordingly, in each case on the day on which the relevant subdivision or consolidation shall have taken effect. The Adjusted Strike Price and the Adjusted Call Price shall be rounded to the nearest If it is announced that the Fund or Trust is to or may merge or consolidate with or into any other trust or corporation (including becoming, by agreement or otherwise, a subsidiary of or controlled by any person or corporation) (except where the Fund or Trust is the surviving entity in a merger or consolidation) or that it is to or may sell or transfer all or substantially all of its assets, the rights attaching to the CBBCs may in the sole and absolute discretion of the Issuer be amended no later than the Business Day preceding the consummation of such merger, consolidation, sale or transfer (each a Restructuring Event ) (as determined by the Issuer in its sole and absolute discretion). The rights attaching to the CBBCs after the adjustment shall, after such Restructuring Event, relate to the number of units of the trust(s) or fund(s) resulting from or surviving such Restructuring Event or other securities (the Substituted Securities ) and/or cash offered in substitution for the affected Units, as the case may be, to which the holder of such number of Units to which the CBBCs related immediately before such Restructuring Event would have been entitled upon such Restructuring Event. Thereafter the provisions hereof shall apply to such Substituted Securities, provided that any Substituted Securities may, in the sole and absolute discretion of the Issuer, be deemed to be replaced by an amount in the relevant currency equal to the market value or, if no market value is available, fair value, of such Substituted Securities in each case as determined by the Issuer as soon as practicable after such Restructuring Event is effected. For the avoidance of doubt, any remaining Units shall not be affected by this paragraph (D) and, where cash is offered in substitution for Units or is deemed to replace Substituted Securities as described above, references in these terms and conditions to the Units shall include any such cash. 119

122 (E) Generally, no adjustment will be made for an ordinary cash dividend (whether or not it is offered with a scrip alternative). For any other forms of cash distribution (each a Cash Distribution ) announced by the Fund or Trust, such as a cash bonus, special dividend or extraordinary dividend, no adjustment will be made unless the value of the Cash Distribution accounts for 2 per cent. or more of the Unit s closing price on the day of announcement by the Fund or Trust. If and whenever the Fund or Trust shall make a Cash Distribution credited as fully paid to the holders of Units generally, the Strike Price, the Call Price and the Entitlement shall be adjusted to take effect on the Business Day on which trading in the Units becomes ex-entitlement (each a Dividend Adjustment Date ) in accordance with the following formulae: The Entitlement will be adjusted to: The Strike Price will be adjusted to: Adjusted Entitlement = Adjustment Factor x E Adjusted Strike Price (which shall be rounded to the nearest 0.001) The Call Price will be adjusted to: Adjusted Call Price (which shall be rounded to the nearest 0.001) Where: = = 1 Adjustment Factor xx 1 Adjustment Factor xy S OD Adjustment Factor = S OD CD E: Existing Entitlement immediately prior to the relevant Cash Distribution X: Existing Strike Price immediately prior to the relevant Cash Distribution Y: Existing Call Price immediately prior to the relevant Cash Distribution S: The closing price of a Unit, as derived from the daily quotation sheet of the Stock Exchange on the Business Day immediately prior to the Dividend Adjustment Date OD: Amount of ordinary cash dividend per Unit (applicable only if the day on which trading in the Units becomes ex-entitlement in respect of the ordinary cash dividend is the same as the Dividend Adjustment Date) CD: Amount of the relevant Cash Distribution per Unit (F) Without prejudice to and notwithstanding any prior adjustment(s) made pursuant to the applicable terms and conditions, the Issuer may (but shall not be obliged to) make such other adjustments to the terms and conditions of the CBBCs as appropriate where any event (including the events as contemplated in the applicable terms and conditions) occurs and irrespective of, in substitution for, or in addition to the provisions contemplated in applicable terms and conditions, provided that such adjustment is: (a) not materially prejudicial to the interests of the Holders generally (without considering the 120

123 circumstances of any individual Holder or the tax or other consequences of such adjustment in any particular jurisdiction); or (b) determined by the Issuer in good faith to be appropriate and commercially reasonable. (G) The Issuer shall determine any adjustment or amendment and its determination shall be conclusive and binding on the Holders save in the case of manifest error. Any such adjustment or amendment shall be set out in a notice, which shall be given to the Holders in accordance with Condition 9 as soon as practicable after the determination thereof. 6 Purchase by the Issuer The Issuer and any of its affiliates may purchase CBBCs at any time on or after the date of their issue and any CBBCs which are so purchased may be surrendered for cancellation or offered from time to time in one or more transactions in the over-the-counter market or otherwise at prevailing market prices or in negotiated transactions, at the sole and absolute discretion of the Issuer or any such affiliate, as the case may be. 7 Global Certificate A global certificate (the Global Certificate ) representing the CBBCs will be deposited within CCASS and registered in the name of HKSCC Nominees Limited (or its successor) or another nominee of Hong Kong Securities Clearing Company Limited. The Global Certificate will not be exchangeable for definitive certificates. 8 Meeting of Holders; Modification (A) Meetings of Holders. Notices for convening meetings to consider any matter affecting the Holders interests will be given to the Holders in accordance with the provisions of Condition 9. Every question submitted to a meeting of the Holders shall be decided by poll. A meeting may be convened by the Issuer or by the Holders holding not less than 10 per cent. of the CBBCs for the time being remaining unexercised. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons (including any nominee appointed by the Holders) holding or representing not less than 25 per cent. of the CBBCs for the time being remaining unexercised, or at any adjourned meeting two or more persons (including any nominee appointed by the Holders) being or representing Holders whatever the number of CBBCs so held or represented. Extraordinary Resolution means a resolution passed at a duly convened meeting by not less than three-quarters of the votes cast by such Holders as, being entitled to do so, vote in person or by proxy. An Extraordinary Resolution passed at any meeting of the Holders shall be binding on all the Holders, whether or not they are present at the meeting. Resolutions can be passed in writing without a meeting of the Holders being held if passed unanimously. Where the Holder is a clearing house recognised by the laws of Hong Kong or its nominee(s), it may authorise such person or person(s) as it thinks fit to act as its representative(s) or proxy(ies) at any Holders meeting provided that, if more than one person is so authorised, the authorisation or proxy form must specify the number of CBBCs in respect of which each such person is so authorised. Each person so authorised 121

124 will be entitled to exercise the same powers and right, including the right to vote on a show of hands, on behalf of the recognised clearing house or its nominee(s) as that clearing house or its nominee(s) as if he was an individual Holder. (B) Modification. The Issuer may, without the consent of the Holders, effect any modification of the terms and conditions of the CBBCs or the Instrument which, in the opinion of the Issuer, is (i) not materially prejudicial to the interests of the Holders generally (without considering the circumstances of any individual Holder or the tax or other consequences of such modification in any particular jurisdiction); (ii) of a formal, minor or technical nature; (iii) made to correct a manifest error; or (iv) necessary in order to comply with mandatory provisions of the laws or regulations of Hong Kong. Any such modification shall be binding on the Holders and shall be notified to them by the Issuer as soon as practicable thereafter in accordance with Condition 9. 9 Notices All notices in English and Chinese to the Holders will be validly given if published on the website of the Hong Kong Exchanges and Clearing Limited. In such circumstances, the Issuer shall not be required to dispatch copies of the notice to the Holders. 10 Termination or Liquidation of Fund or Trust In the event of a Termination or the liquidation or dissolution of the trustee of the Fund or Trust (including any successor trustee appointed from time to time) ( Trustee ) (in its capacity as trustee of the Fund or Trust) or the appointment of a liquidator, receiver or administrator or analogous person under applicable law in respect of the whole or substantially the whole of the Trustee s undertaking, property or assets, all unexercised CBBCs will lapse and shall cease to be valid for any purpose. The unexercised CBBCs will lapse and shall cease to be valid (i) in the case of a Termination, on the effective date of the Termination; (ii) in the case of a voluntary liquidation, on the effective date of the resolution; (iii) in the case of an involuntary liquidation or dissolution, on the date of the relevant court order; or (iv) in the case of the appointment of a liquidator or receiver or administrator or analogous person under applicable law in respect of the whole or substantially the whole of the Trustee s undertaking, property or assets, on the date when such appointment is effective but subject (in any such case) to any contrary mandatory requirement of law. For the purpose of this Condition 10, Termination means (i) the Fund or Trust is terminated, or the Trustee or the manager of the Fund or Trust (including any successor manager appointed from time to time) ( Manager ) is required to terminate the Fund or Trust under the trust deed ( Trust Deed ) constituting the Fund or Trust or applicable law, or the termination of the Fund or Trust commences; (ii) the Fund or Trust is held or is conceded by the Trustee or the Manager not to have been constituted or to have been imperfectly constituted; (iii) the Trustee ceases to be authorised under the Fund or Trust to hold the property of the Fund or Trust in its name and perform its obligations under the Trust Deed; or (iv) the Fund or Trust ceases to be authorised as an authorised collective investment scheme under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong). 11 Delisting of Fund or Trust (A) If at any time the Units cease to be listed on the Stock Exchange, the Issuer shall give effect to these terms and conditions in such manner and make such adjustments to the rights attaching to the CBBCs as it shall, in its sole and absolute discretion, consider appropriate to ensure, so far as it is reasonably able to do so, that the interests of the 122

125 Holders generally are not materially prejudiced as a consequence of such delisting (without considering the individual circumstances of the Holders or the tax or other consequences that may result in any particular jurisdiction). (B) (C) Without prejudice to the generality of Condition 11(A), where the Units are or, upon the delisting, become, listed on any other stock exchange, these terms and conditions may, in the sole and absolute discretion of the Issuer, be amended to the extent necessary to allow for the substitution of that other stock exchange in place of the Stock Exchange and the Issuer may, without the consent of the Holders, make such adjustments to the entitlements of the Holders on exercise or upon the occurrence of a Mandatory Call Event (including, if appropriate, by converting foreign currency amounts at prevailing market rates into amounts in the relevant currency) as it shall consider appropriate in the circumstances. Any adjustment, amendment or determination made by the Issuer pursuant to this Condition 11 shall be conclusive and binding on the Holders save in the case of manifest error. Notice of any adjustments or amendments shall be given to the Holders in accordance with Condition 9 as soon as practicable after they are determined. 12 Further Issues The Issuer shall be at liberty from time to time, without the consent of the Holders, to create and issue further callable bull/bear contracts, upon such terms as to issue price and otherwise as the Issuer may determine so as to form a single series with the CBBCs. 13 Illegality or Impracticability The Issuer is entitled to terminate the CBBCs if it determines in good faith and in a commercially reasonable manner that, for reasons beyond its control, it has become or it will become illegal or impracticable: (a) for it to perform its obligations under the CBBCs, in whole or in part as a result of: (i) (ii) the adoption of, or any change in, any relevant law or regulation (including any tax law); or the promulgation of, or any change in, the interpretation by any court, tribunal, governmental, administrative, legislative, regulatory or judicial authority or power with competent jurisdiction of any relevant law or regulation (including any tax law), (each of (i) and (ii), a Change in Law Event ); or (b) for it or any of its affiliates to maintain the Issuer s hedging arrangements with respect to the CBBCs due to a Change in Law Event. Upon the occurrence of a Change in Law Event, the Issuer will, if and to the extent permitted by the applicable law or regulation, pay to each Holder a cash amount that the Issuer determines in good faith and in a commercially reasonable manner to be the fair market value in respect of each CBBC held by such Holder immediately prior to such termination (ignoring such illegality or impracticability) less the cost to the Issuer of unwinding any related hedging arrangement as determined by the Issuer in its sole and absolute discretion. Payment will be made in such manner as shall be notified to the Holders in accordance with Condition

126 14 Good Faith and Commercially Reasonable Manner Any exercise of discretion by the Issuer under these terms and conditions will be made in good faith and in a commercially reasonable manner. 15 Governing Law The CBBCs and the Instrument will be governed by and construed in accordance with the laws of the Hong Kong Special Administrative Region of the People s Republic of China ( Hong Kong ). The Issuer and the Holder (by its acquisition of the CBBCs) shall be deemed to have submitted for all purposes in connection with the CBBCs and the Instrument to the non-exclusive jurisdiction of the courts of Hong Kong. 16 Language In the event of any inconsistency between the English version and Chinese translation of these terms and conditions, the English version shall govern and prevail. Sponsor Standard Chartered Bank (Hong Kong) Limited 32/F, 4-4A Des Voeux Road Central Hong Kong 124

127 ANNEX 3 PURCHASE AND SALE General No action has been or will be taken by the Issuer that would permit a public offering (other than Hong Kong) of any series of structured products or possession or distribution of any offering material in relation to any structured products in any jurisdiction where action for that purpose is required. No offers, sales, re-sales, transfers or deliveries of any structured products, or distribution of any offering material relating to structured products, may be made in or from any jurisdiction except in circumstances which will result in compliance with any applicable laws and regulations and will not impose any obligations on the Issuer. The offer and sale of structured products will also be subject to such other restrictions and requirements as may be set out in the relevant supplemental listing document. Persons interested in acquiring structured products should inform themselves and obtain appropriate professional advice as to (i) the legal requirements within the countries of their nationality, residence, ordinary residence or domicile for such acquisition; (ii) any foreign exchange restrictions or exchange control requirements which they might encounter on the acquisition of structured products or their redemption; or (iii) the acquisition, holding or disposal of structured products. United States of America The structured products have not been, and will not be, registered under the Securities Act. Structured products, or interests therein, may not at any time be offered, sold, resold or delivered, directly or indirectly, in the United States or to, or for the account or benefit of, any U.S. person or to others for offering, sale or resale in the United States or to any such U.S. person. Offers and sales of structured products, or interests therein, in the United States or to U.S. persons would constitute a violation of United States securities laws unless made in compliance with the registration requirements of the Securities Act or pursuant to an exemption therefrom. The structured products will not be offered, sold or delivered within the United States or to U.S. persons. As used herein, United States means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction; and U.S. person means any national or resident of the United States, including any corporation, partnership or other entity created or organised in or under the laws of the United States or of any political subdivision thereof, any estate or trust the income of which is subject to United States income taxation regardless of its source, and any other U.S. person as such term is defined in Regulation S under the Securities Act. European Economic Area In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State ), each dealer has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date ) it has not made and will not 125

128 make an offer of structured products which are the subject of the offering contemplated by this base listing document as completed by the relevant supplemental listing document in relation thereto to the public in that Relevant Member State other than: (a) (b) (c) to any legal entity which is a qualified investor as defined in the Prospectus Directive; to fewer than 100 or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive subject to obtaining the prior consent of the relevant dealer or dealers nominated by the Issuer for any such offer; or in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of structured products shall require the Issuer or any dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an offer of structured products to the public in relation to any structured products in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the structured products to be offered so as to enable an investor to decide to purchase or subscribe the structured products, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. United Kingdom The Issuer represents, warrants and agrees that: (a) (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any structured products in circumstances in which Section 21(1) of the FSMA does not or where applicable would not, if the Issuer was not an authorised person, apply to the Issuer; and it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any structured products in, from or otherwise involving the United Kingdom. 126

129 ANNEX 4 A BRIEF GUIDE TO CREDIT RATINGS Information set out in this Annex 4 is based on, extracted or reproduced from the website of S&P at and the website of Moody s at as of 17 April Information appearing on those websites does not form part of this document, and we accept no responsibility for the accuracy or completeness of the information appearing on those websites, except that we have accurately extracted and reproduced such information in this Annex and take responsibility for such extraction and reproduction. We have not separately verified such information. There can be no assurance that such information will not be revised by the relevant rating agency in the future and we have no responsibility to notify you of such change. If you are unsure about any information provided in this Annex and/or what a credit rating means, you should seek independent professional advice. What is a credit rating? A credit rating is a forward looking opinion by a credit rating agency of a company s overall ability to meet its financial obligations. The focus is on the company s capacity to pay its debts as they become due. The issuer rating does not necessarily apply to any specific obligation. What do the credit ratings mean? Below are guidelines issued by S&P and Moody s on what each of their investment-grade ratings means as of 17 April S&P long-term issuer credit ratings AAA An obligor rated AAA has extremely strong capacity to meet its financial commitments. AAA is the highest issuer credit rating assigned by S&P. AA An obligor rated AA has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree. A An obligor rated A has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories. BBB An obligor rated BBB has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. Plus (+) or minus (-) The above ratings (except for AAA ) may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. 127

130 Please refer to for further details. Moody s long-term ratings definitions Aaa Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk. Aa A Baa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk. Obligations rated A are considered upper-medium grade and are subject to low credit risk. Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics. Modifiers 1, 2 and 3 Moody s appends numerical modifiers 1, 2 and 3 to each of the above generic rating classifications (except for Aaa). The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Please refer to for further details. Rating Outlooks A rating outlook indicates the potential direction of a long-term credit rating over the intermediate term (for example, this is typically six months to two years for S&P). A rating outlook issued by S&P or Moody s will usually indicate whether the potential direction is likely to be positive, negative, stable or developing. Please refer to the abovementioned websites of the relevant credit rating agencies for further details regarding rating outlooks published by the relevant credit rating agencies. 128

131 ANNEX 5 FINANCIAL INFORMATION RELATING TO SCB The information in this Annex 5 has been extracted from the Standard Chartered Bank Directors Report and Financial Statements 31 December The page numbers of such document appear on the bottom of the pages in this Annex. Page references within the Standard Chartered Bank Directors Report and Financial Statements 31 December 2013 are to the page numbers within such document. 129

132 Reference Number ZC18 Strategic Report, Directors Report and Financial Statements 31 December 2013 Incorporated in England with limited liability by Royal Charter 1853 Principal Office: 1 Basinghall Avenue, London, EC2V 5DD, England 130

133 Contents Strategic report 3 Principal activities 3 Overview of risk including principal uncertainties 4 Business environment 8 People 12 Financial Review Financial performance Group Financial performance Consumer Banking Financial performance Wholesale Banking Risk Review Financial risk management Capital Report of the directors Statement of Directors responsibilities 130 Report of the auditors 131 Financial statements Notes to the accounts Page 2 131

134 Strategic report Principal activities The activities of the Group are banking and providing other financial services. The Group has operated for over years in some of the world's most dynamic market and earns around 90 per cent its income and profits in Asia, Africa and the Middle East This geographic focus and commitment to developing deep relationships with clients and customers has driven the Group's growth in recent years. It is committed to building a sustainable business over the long term and upholding high standards of corporate governance, social responsibility, environmental protection and employee diversity. The following diagram illustrates the Group's business model. The Group's business model The Group's business model develops on the Group's strategy which banks people and companies driving investment, trade and the creation of wealth across Asia, Africa and the Middle East. Our geographies We operate in 70 markets with a focus on Asia, Africa and the Middle East. Our Activities We manage savings and cash and facilitate transactions whilst supplying funds for productive uses, facilitating trade and providing advice. We organise the Group into two main business areas namely Consumer Banking and Wholesale Banking. Consumer Banking Consumer banking seeks to build banking relationships with individuals and Small and Medium Sized Enterprises To enable the Group to provide the best possible service to Individuals it organises itself into three main areas to serve personal and preferred banking customers, priority and international banking customers and private banking customers. We help customers to store their savings and cash and make transactions (our Deposits product segment). Our wealth management business helps people to grow and protect their wealth to meet long term needs. We help customer to finance their needs by offering various products such as cards, personal loans and unsecured lending. We supply credit to help people buy homes and vehicle via our mortgage and auto finance business. SME Banking We help SMEs to set up, trade and expand by supplying funds whilst enabling SMEs to do business by managing their cash, payments and collections (our SME Banking segment). Wholesale Banking Wholesale banking aims to create and deepen relationships with Corporates. To direct our focus and the relevance of products and services offered the Group organises Wholesale banking into Global Corporates this comprises large multinational corporations, Local corporates (corporations that operate mainly in their home market), Financial institutions (banks and other financial institutions) and Commodity traders & Agribusiness (commodity traders, producers and processors). The Group helps companies do business by managing their cash, transactions and security holdings. We supply funds for productive uses, facilitate trade and provide advice across the following services: Our Lending and Portfolio Management segment facilitates growth of businesses by providing finance; Our Transaction Banking - Trade business focuses on facilitating cross-border trade, by providing companies with finance and transactional services, Our Financial Markets business helps clients to invest, manage risks and raise debt capital; We support clients by providing strategic advice and solutions, including for mergers and acquisition and raising equity finance through our Corporate Finance business; We make equity investments to supply business with capital they need to grow through our Principal Finance business. Under our 'Saadiq brand', we offer Islamic banking services in a number of our markets that helps people and business to make the choice to bank in accordance with their faith by giving them access to a wide range of Shariah - compliant banking products and services. Authority The strategic report up to page has been issued: By order of the Court Peter Sands Director 5 March Company Reference Number: 3 132

135 Strategic report continued Our enablers The following enablers sustain our activities by providing support and encouraging discipline to ensure the Group can be a responsible partner to Regulators through its exemplary governance and ethics: 1. Finance - measuring and managing financial performance; 2. Human Resources - acquiring, developing and retaining talent; 3. Technology and Operations - providing the infrastructure and support for the Group to effectively and efficiently carry out its activities; 4. Risk: monitoring and mitigating the Group s credit, market and operational risk 5. Compliance: ensuring the bank s activities and conduct comply with legal and regulatory requirements 6. Treasury: managing the Group s capital and liquidity, including: Capital Management; ensuring we meet regulatory requirements and have sufficient capacity to absorb losses in case of loan default Asset and Liability Management (ALM): ensuring optimum liquidity levels are maintained across the Group and sufficient funds are maintained to fund our assets (e.g loans) 7. Other central support functions: Corporate Real Estate Strategy Corporate Development Corporate Affairs Legal Audit Corporate Secretariat Research Key performance indicators We aim to sustain organic momentum, growing profits in a disciplined way Key driver for performance is the operating income. Although our profits was down by 11 per cent (down 7 per cent excluding own credit adjustment (OCA), good will and the US settlements). We continued to support client and customers and we controlled costs tightly in both business to mitigate lower income in WB and increased impairment in CB The key performance indicators for the Group are closely aligned with that of its ultimate parent Standard Chartered PLC and focus on performance, the markets the Group operates in, building trusted relationships with clients whilst focusing on conservative balance sheet management. Remuneration of directors The remuneration of directors is covered in the Remuneration of Directors on page Overview of risk Standard Chartered has a defined risk appetite, approved by the Court, which is an expression of the amount of risk we are prepared to take. This plays a central role in the development of our strategic plans and policies. We have a well-established risk governance structure and we closely manage our risks to build a sustainable franchise in the interests of all our stakeholders. Our risk profile is aligned to our business strategy and risk appetite. We have low exposure to asset classes and segments outside our core markets and target customer base. Our balance sheet is highly liquid and diversified across a wide range of products, industries, geographies and customer segments, which serves to mitigate risk. We review and adjust our underwriting standards and limits in response to observed and anticipated changes in the external environment and the evolving expectations of our stakeholders. This section provides a high level overview of our risk management framework. Further details of our risk profile and our approach to risk management are set out in the Financial Risk Management section on pages 28 to 37. Risk management framework Effective risk management is fundamental to being able to generate profits consistently and sustainably and is thus a central part of the financial and operational management of the Group. Through our risk management framework we manage enterprise-wide risks, with the objective of maximising risk-adjusted returns while remaining within our risk appetite. Risk governance Overall accountability for risk management is held by the Standard Chartered Bank Court (the Court) which comprises the group executive directors and other senior executives of Standard Chartered Bank

136 Strategic report continued The Court is the highest executive body of the Group and its terms of reference are approved by the Board of Standard Chartered PLC. The Court delegates authority for the management of risk to the GRC and the GALCO. The GRC is responsible for the management of all risks other than those delegated by the Court to the GALCO. The GRC is responsible for the establishment of, and compliance with, policies relating to credit risk, country cross-border risk, market risk, operational risk, pension risk and reputational risk. The GRC also defines our overall risk management framework. The GALCO is responsible for the management of capital and the establishment of, and compliance with, policies relating to balance sheet management, including management of our liquidity, capital adequacy and structural foreign exchange and interest rate risk. Members of the GRC and the GALCO are both drawn from the Court. The GRC is chaired by the Group Chief Risk Officer (GCRO). The GALCO is chaired by the Group Finance Director. Risk limits and risk exposure approval authority frameworks are set by the GRC in respect of credit risk, country cross-border risk, market risk and operational risk. The GALCO sets the approval authority framework in respect of liquidity risk. Risk approval authorities may be exercised by risk committees or authorised individuals. The committee governance structure ensures that risk-taking authority and risk management policies are cascaded down from the Board through to the appropriate functional, divisional and country-level committees. Information regarding material risk issues and compliance with policies and standards is communicated to the country, business, functional and Group-level committees. Roles and responsibilities Roles and responsibilities for risk management are defined under a Three Lines of Defence model. Each line of defence describes a specific set of responsibilities for risk management and control: First line of defence: all employees are required to ensure the effective management of risks within the scope of their direct organisational responsibilities. Business, function and geographic heads are accountable for risk management in their respective businesses and functions, and for countries where they have governance responsibilities Second line of defence: this comprises the Risk Control Owners, supported by their respective control functions. Risk control owners are responsible for ensuring that the risks within the scope of their responsibilities remain within appetite. The scope of a risk control owner s responsibilities is defined by a given risk type and the risk management processes that relate to that risk type. These responsibilities cut across the Group and are not constrained by functional, business and geographic boundaries. The major risk types are described individually in the pages that follow Third line of defence: the independent assurance provided by the Group Internal Audit (GIA) function. Its role is defined and overseen by the Audit Committee of Standard Chartered PLC. The findings from the GIA s audits are reported to all relevant management and governance bodies accountable line managers, relevant oversight function or committee and committees of the Board. The GIA provides independent assurance of the effectiveness of management s control of its own business activities (the first line) and of the processes maintained by the Risk Control Functions (the second line). As a result, the GIA provides assurance that the overall system of control effectiveness is working as required within the Risk Management Framework. The GCRO directly manages a Risk function that is separate from the origination, trading and sales functions of the businesses. The GCRO also chairs the GRC and is a member of the Court. The independence of the Risk function is to ensure that the necessary balance in risk/return decisions is not compromised by shortterm pressures to generate revenues. This is particularly important given that revenues are recognised from the point of sale while losses arising from risk positions typically manifest themselves over time. Risks inherent in our business The management of risk lies at the heart of Standard Chartered s business. One of the main risks we incur arises from extending credit to customers through our trading and lending operations. Beyond credit risk, we are also exposed to a range of other risk types such as country cross-border, market, liquidity, operational, pension, reputational and other risks that are inherent to our strategy, product range and geographical coverage. Our primary risk types are set out in the table below, with an explanation of how they arise from our business. While we recognise that a single transaction or activity may give rise to multiple types of risk exposure, we use risk types to ensure comprehensive and consistent identification and control of risks, wherever they may arise

137 Strategic report continued Risk type Risk type definition Where the risk principally arises Credit Country Cross Border Market Liquidity Operational Reputational Pension Capital Potential for loss due to failure of counterparty to meet its obligations to pay the Group in accordance with agreed terms Potential for loss due to the inability to obtain payment from customers/ third parties on their contractual obligations, as a result of certain actions taken by foreign governments, chiefly relating to convertibility and transferability of foreign currency Potential for loss of earnings or economic value due to adverse changes in financial market rates or prices Potential that the Group does not have sufficient financial resources in the short-term to meet its obligations as they fall due, or can access these financial resources only at excessive cost Potential for loss arising from the failure of people, processes or technology, or from external events Potential for damage to our franchise, resulting in loss of earnings or adverse impact on market capitalisation resulting from stakeholders taking a negative view of the Group or its actions Potential for loss due to the meeting of an actuarially assessed shortfall in the Group s pension schemes Potential for actual or opportunity loss from sub-optimal allocation of capital or increase in cost of capital Activities involving lending or other financial commitments from clients or third parties Activities involving lending or transactions across borders or in a currency other than the currency in which the transaction is booked Financial markets exposures (to support client-driven transactions) and exposures in the loan book affected by interest rate and crosscurrency fluctuations All activities of the Group All activities of the Group All activities of the Group Defined benefit pension schemes provided to the Group's employees in some markets All activities of the Group How this relates to our business model Lending and helping clients and customers manage risks is core to our banking service Providing funds across borders and currencies facilitates trade and cross-border investment Providing clients and customers with ready access to financial markets can give rise to shortterm market- making positions. Providing funding choices to clients can give rise to a mismatch between funding and lending currencies. We balance the needs of depositors who require ready access to their cash and savings, while providing longer-term loans to clients and customers who need the financial stability to invest in longer term projects such as housing or infrastructure Operational risks are inherent in our business. While these risks are actively managed, they cannot be entirely avoided Our reputation is a function of how we are perceived by our stakeholders, including clients and customers, investors, regulators, staff and the communities in which we operate These do not arise from our current business but principally as a legacy of pension commitments made to staff in previous years We are committed to growth underpinned by the diversity of our business across clients and customers, products and geographies Principal uncertainties We are in the business of taking selected risks to generate shareholder value, and we seek to contain and mitigate these risks to ensure they remain within our risk appetite and are adequately compensated. The key uncertainties we face in the coming year are set out below. This should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties that we may experience

138 Strategic report continued Risk Description Mitigants Deteriorating macroeconomic conditions in footprint countries Regulatory changes Deteriorating macroeconomic conditions can have an impact on our performance via their influence on personal expenditure and consumption patterns; demand for business products and services; the debt service burden of consumers and businesses; the general availability of credit for retail and corporate borrowers; and the availability of capital and liquidity funding for our business The nature and impact of future changes in economic policies, laws and regulations are not predictable and may run counter to our strategic interests. These changes could also affect the volatility and liquidity of financial markets, and more generally the way we conduct business and manage capital and liquidity We balance risk and return, taking account of changing conditions through the economic cycle We monitor economic trends in our markets very closely and continuously review the suitability of our risk policies and controls We review key regulatory developments in order to anticipate changes and their potential impact on our performance Both unilaterally and through our participation in industry groups we respond to consultation papers and discussions initiated by regulators and governments. The focus of these activities is to develop the framework for a stable and sustainable financial sector and global economy Regulatory compliance Although we seek to comply with all applicable laws and regulations, we may be subject to regulatory actions and investigations across our markets, the outcome of which are generally difficult to predict and could be material to the Group Regulators and other agencies in certain markets are conducting investigations into a number of areas of market conduct involving a range of financial products, including sales and trading conduct, and submissions made to set various market interest rates and other financial benchmarks, such as foreign exchange We have established a Financial Crime Risk Mitigation Programme, which is a comprehensive, multi-year programme designed to review many aspects of our existing approach to anti-money laundering and sanctions compliance and to enhance these as appropriate We are contributing to industry proposals to strengthen financial benchmark processes in certain markets and continue to review our practices and processes in the light of the investigations, reviews and industry proposals Financial markets dislocation Financial markets volatility or a sudden dislocation could affect our performance, through its impact on the markto-market valuations of assets in our available-for-sale and trading portfolios or the availability of capital or liquidity Financial markets instability also increases the likelihood of default by our corporate customers and financial institution counterparties We assess carefully the performance of our financial institution counterparties, rate them internally according to their systemic importance, adjusting our exposure accordingly We maintain robust processes to assess the suitability and appropriateness of products and services we provide to our clients and customers Geopolitical events We face a risk that geo-political tensions or conflict in our footprint could impact trade flows, our customers ability to pay, and our ability to manage capital across borders We actively monitor the political situation in all of our principal markets and conduct regular stress tests of the impact of such events on our portfolios, which inform assessments of risk appetite and any need to take mitigating action Risk of fraud and other criminal acts Exchange rate movements The banking industry has long been a target for third parties seeking to defraud, to disrupt legitimate economic activity, or to facilitate other illegal activities. The risk posed by such criminal activity is growing as criminals become more sophisticated and as they take advantage of the increasing use of technology and the internet. The incidence of cyber crime is rising, becoming more globally co-ordinated, and is challenge for all organisations Changes in exchange rates affect the value of our assets and liabilities denominated in foreign currencies, as well as the earnings reported by our non-us dollar denominated branches and subsidiaries Sharp currency movements can also impact trade flows and the wealth of clients, both of which could have an impact on our performance We seek to be vigilant to the risk of internal and external crime in our management of people, processes, systems and in our dealings with customers and other stakeholders We have a broad range of measures in place to monitor and mitigate risk. Controls are embedded in our policies and procedures across a wide range of Group s activities, such as origination, recruitment, physical and information security We have a broad set of techniques, tools and activities to detect and respond to cyber crime, in its many forms. We actively collaborate with our peers, regulators and other expert bodies as part of our response to this risk We actively monitor exchange rate movements and adjust our exposure accordingly Under certain circumstances, we may take the decision to hedge our foreign exchange exposures in order to protect our capital ratios from the effects of changes in exchange rates 7 136

139 Strategic report continued Business environment 2013 marked a year of resilience for the global economy. The European Central Bank s supportive actions at the end of 2012 to stem the turmoil in the euro area helped stabilise world growth after two consecutive years of deceleration. Standard Chartered s biggest markets in Asia, Africa and the Middle East once again proved to be the main engines of global growth, helping offset a sharp slowdown in the US (caused by severe government budget cuts) and continued recession in the euro area. Economies in Asia, excluding Japan, expanded by 6.4 per cent, Africa grew by 5.1 per cent and the Middle East by 3.9 per cent. As a result, global growth accelerated marginally to 2.8 per cent in 2013 from 2.5 per cent in Emerging markets accounted for over half of global growth last year, continuing a pattern seen since the 2008 financial crisis. Economies across Asia, Africa, the Middle East and Latin America have grown much bigger over the past decade, so much so that even slowing growth rates in these economies now result in a sizeable expansion of the global economy. For instance, China, the world s second-largest economy, grew by 7.7 per cent last year, following a 7.7 per cent expansion in While this pace is decidedly slower than growth rates in excess of 10 per cent witnessed in the past decade, at the current rate, China is creating an economy the size of India the world s tenth-largest economy every three years. Another trend has become apparent since the financial crisis: growth in emerging markets is increasingly becoming self-sustaining, though countries are still not immune to the state of developed economies. Rising consumerism among a growing middleclass is being fuelled by higher incomes, rising aspirations and increased urbanisation. As a result, local demand, besides increased spending on industrialisation and infrastructure development, is powering growth in many of these markets. Emerging economies are also trading more among themselves and investing more in each other s economies. These trends have shielded them from the troubled developed world since the onset of the financial crisis outlook 2014 should be a better year for the global economy than We expect growth to accelerate to 3.5 per cent from 2.8 per cent thanks to marked improvements in the US and Europe. The US economy is likely to expand by 2.6 per cent, up from 1.9 per cent last year, while the euro area should return to growth expanding by 1.3 per cent after two years of contraction. We forecast that growth in the second half of 2014 will be stronger than in the first half, and that inflation will remain benign. However, the way growth plays out will depend largely on policy changes in the US and China, the world s two largest economies. Two key questions come to the fore: will the US Federal Reserve (Fed) be able to manage a gradual tightening of monetary conditions without hurting the fragile recovery? Can China execute the boldest set of reforms in three decades to become a more sustainable, consumer-driven economy? The Fed has started unwinding its quantitative easing (QE) programme as, on balance, it reckons the US economy has significantly recovered from the 2008 to 2009 recession. The unwinding of QE is likely to be gradual because inflation remains low. The US recovery and Fed s cautious stance should support the emerging markets, although those with weak current accounts or facing elections could see some volatility. Meanwhile, China has outlined impressive reforms, its exports are likely to benefit from the upswing in the US and Europe, and its housing sector should remain an important growth driver. Asia The acceleration in US activity and Europe s return to growth are welcome changes for Asia, which for the past five years has been relying mostly on domestic demand and trade with other emerging markets to power the global recovery. The US and the European Union are each almost twice the size of China in terms of nominal gross domestic output, making them vital determinants of global growth despite China s emergence as the world s main growth engine in recent years. A recent Standard Chartered research report, which examined the linkages between Asia, China and the US, found that the US featured as one of the top-three export destinations for seven of the 10 Asian economies studied. Moreover, an estimated 50 per cent of China s imports from the rest of Asia are processed and re-exported to the US and other Western markets. As a result of these close trade linkages, the recovery in the West is expected to boost economic growth in Asia, excluding Japan, to 6.6 per cent in 2014 from 6.4 per cent in China is likely to be one of the biggest beneficiaries of the upturn in the West as the country gets the external support needed to usher in the most ambitious package of reforms since it opened up to the world in the 1980s. In fact, reform and rebalancing will be in focus across Asia in the coming year. China s economic rebalancing, with consumption growing in importance relative to investment, is likely to move along steadily. The recently concluded Third Plenary Session provided the clearest sign that the allpowerful Politburo of the Chinese Communist Party is leading the ambitious agenda for economic and social reform. We expect a stronger push for land and state-owned enterprise reform, a further opening up of the capital account and less intervention in the currency markets. These reforms are necessary for the sustainability of China s growth, but short-term volatility cannot be ruled out, especially as the central bank is likely to continue to restrain credit growth. As the reforms take effect, China s economy is likely to slow, marginally, to 7.4 per cent in 2014 from 7.7 per cent in China s growing prominence in the world economy is being reflected in growing global recognition of its currency, the renminbi (RMB). The RMB should become increasingly accepted as a unit for making cross-border payments and settling international trade, 8 137

140 Strategic report continued as a currency for raising capital, and as a store of wealth as it continues its inexorable rise to become one of the world s leading reserve currencies. Standard Chartered s Renminbi Globalisation Index, which tracks the internationalisation of the currency, has risen more than 13-fold since December We expect the RMB to displace the Japanese yen as the fourth-largest payment currency by Meanwhile, economies in Southeast Asia are likely to benefit from their growing competitiveness with respect to China as a manufacturing centre, enabling them to attract increased foreign direct investment. Since 2000, growth in the 10-nation ASEAN region has exceeded that in the rest of the world by an average of 1.5 percentage points. This outperformance is likely to continue in the coming years. In South Asia, India faces a key general election in 2014 whose outcome will determine the next stage of economic reforms that are vital for returning economic growth to its potential of around 8 per cent. A strong mandate for a stable government, even if it is a coalition, will be key to pushing through wide-ranging reforms that have stalled in recent years, affecting growth. India, Indonesia and some other emerging economies running wide current account deficits saw sharp declines in their currencies during mid-2013 following the Fed s talk of starting to unwind its QE programme as investors fretted about the ability of these economies to fund their deficits. However, with currencies already lower and central banks now better prepared, further volatility (as US long-term rates gradually normalise) is likely to be limited. Tighter monetary policies and a string of other policy measures used to shore up economic defences are likely to keep growth in these economies below trend in 2014, although better than in The Middle East and Africa The resource-rich Gulf Cooperation Council (GCC) countries in the Middle East should see a year of strong growth. Oil prices are likely to remain at levels that will boost the coffers of GCC governments, giving them the fiscal strength to drive growth and diversify their economies away from energy industries. Saudi Arabia s and the UAE s infrastructure investment is set to continue at a fast pace. We expect infrastructure building in Qatar to pick up by the end of 2014 and early 2015 as the country starts preparing for the 2022 FIFA World Cup. However, job creation is a challenge across large parts of the region and especially in the oil-importing economies that face slower economic activity, rising fiscal pressure and increasing youth unemployment. In the oil-rich GCC region, job creation per se is not that big a problem, as its economies are booming, but the challenge is to encourage greater participation of the local labour force in the private sector, moving away from its over-reliance on the government sector. Thus, the Middle East remains a tale of two worlds. Meanwhile, Africa is likely to outperform world growth in 2014, as it has for the past decade. Resource exploration remains important and commodity output gains should compensate for weaker prices to boost growth. However, domestic demand remains the fundamental growth driver across the continent. The rise of the African middle-class spurred by an improved policy environment, stable inflation, greater savings and a more open embrace of the private sector is being reinforced by large-scale infrastructure and resource investment, as seen most recently in eastern Africa, where governments are keen to commercialise new oil and gas discoveries. Meanwhile, the continent is leveraging the digital revolution to leapfrog other emerging economies. The rapid pick-up in the use of mobile payments across Africa is a good example of such innovation. Overall, we expect economies across Sub-Saharan Africa to expand by 5.5 per cent in 2014, up from 5.1 per cent in As many as seven of the region s biggest economies Angola, Cote d Ivoire, Ghana, Nigeria, Sierra Leone and Tanzania are forecast to grow by around 7 per cent or faster. At this rate, these economies will double in size in 10 years. What is even more encouraging is that many of the region s economies are making significant progress in terms of sustainable development. Ghana, Uganda and Nigeria ranked among the Top Ten best performers in the Standard Chartered Development Index that measures the change in a broad range of indicators over a period of 12 years to Most of these economies have shown progress across four key factors determining sustainable growth GDP per capita, years of education, life expectancy and environmental health (including air pollution and availability of water). However, the fifth factor, ecosystem vitality (or the long-term sustainability of the environment, including climate change), remains a challenge for most emerging economies. Africa needs to continue expanding at this strong and sustainable pace to overcome its challenges, including still-widespread poverty, income inequality, a dearth of educational and healthcare facilities and an infrastructure deficit. Despite rapid growth in recent years, job creation has fallen behind population growth across the continent. These challenges, in turn, provide enormous opportunities for local and international businesses. Urbanisation as a growth driver Urbanisation will be an important theme driving growth not only in Africa but also across the Group s other markets in Asia and the Middle East over the coming decades. The benefits of urbanisation come from the economics of agglomeration. Urbanisation helps to improve the well-being of citizens by improving access to services, housing and other infrastructure. This can boost productivity and efficiency as distances are 9 138

141 Strategic report continued shortened, business costs are lowered, and jobs and labour supply are concentrated rather than dispersed. The benefits are clear a nation s economy is typically concentrated in and around its cities. For example, Jakarta accounts for about 17 per cent of Indonesia s GDP but only 0.04 per cent of its land mass and 4.2 per cent of its population. Urbanisation is also associated with growing wealth. A recent Standard Chartered study that categorised ASEAN into three tiers based on the countries level of urbanisation, assuming that Tier 3 economies reach the current Tier 2 urbanisation rate (50 per cent) and Tier 2 economies reach the current Tier 1 rate (75 per cent), found that ASEAN s GDP per capita could almost triple to $10,290 from $3,509 in Urbanisation grows slower than the overall economy, but per capita GDP typically rises at an exponential rate as urbanisation increases. Urbanisation has a long way to go across our markets, as economies in South and Southeast Asia and Africa are largely rural and will need to play catch-up with their more developed neighbours in Northeast Asia. According to the World Bank, while the world passed the 50 per cent urbanisation mark in 2007, six ASEAN countries Cambodia, Laos, Myanmar, the Philippines, Thailand and Vietnam have not yet passed this point (as of 2012). Indonesia just crossed the mid-point, at 51.4 per cent, while Singapore, Malaysia and Brunei are largely urbanised. Meanwhile, China s urbanisation level stands at 52 per cent, and India s is still below 30 per cent. The region as a whole still has enormous catch-up potential to sustain high economic growth rates. Policy challenges and other risks The Fed s unwinding of its QE programme is possibly the biggest risk facing the global economy in the coming year. QE helped the Fed manage interest-rate expectations. A central bank that is implementing QE is highly unlikely to hike interest rates soon. As a result, long-term market interest rates remained low, and this helped some parts of the economy, particularly the housing market, to recover. The Fed s most important action under its new Chair Janet Yellen should be to orchestrate a smooth unwinding of QE without causing a sharp rise in long-term interest rates. Fed policy makers will need to see strong evidence that the economy is accelerating as it proceeds with tapering. We expect the US economy to show enough resilience for the Fed to end QE by the end of With QE coming to a close, the Fed is likely to rely mostly on forward guidance to influence market rates, which may not be as effective. As a result, market interest rates could move higher in 2014, causing volatility in equities and currency markets. Inflation remains benign, with the exception of a few emerging markets. Among the Bank s biggest markets, we expect policy rates to go up marginally by basis points in Indonesia, the Philippines, Thailand, Taiwan, South Korea, Malaysia and Nigeria, with no change in other key markets. Commodity prices are stable; and labour markets, both in the US and Europe, remain substantially slack. Meanwhile, the Fed is likely to raise its policy rate only in the second half of China s rebalancing is the other concern facing the global economy. Policymakers in Beijing will need to deftly steer the economy s drivers away from exports and investments to consumptions, and at the same time maintain growth on an even keel. Debt levels in China s corporate and local government sectors have expanded rapidly in recent years as the government has sought to counter the effects of the 2008 financial crisis by boosting credit growth. The authorities are aware of the pitfalls of rapid credit growth and, in 2013, the central bank moved to tighten short-term funding for banks to wean the economy off ultra-loose liquidity. Tight monetary policies are likely to continue, at least in the first half of The authorities are coaxing banks and businesses to be more aware of risks when making borrowing and lending decisions and curbing lending to industries facing overcapacity. In the event of a significant deterioration in the economy, problem loans are likely to surface and some banks may have to be recapitalised but, unlike most other major economies today, China has sufficient financial means to inject capital and restructure its problem lenders. Rising debt levels across the rest of Asia in recent years are also causing concern. A Standard Chartered study concluded that an analysis of this issue needs to be carefully nuanced. Differentiation is vital, as painting all of Asia with the same brush could lead to wrong conclusions. After years of rapid economic growth, Asia s, excluding Japan s, overall debt-to-gdp ratio has just reached the world average. However, on a more granular scale, the study of debt and solvency across the corporate, household and government sectors in Asia found that current leverage levels are broadly manageable, with pockets of concern and areas of opportunity areas where leverage can still rise to generate faster growth. South Korea s high leverage spans the economy and continues to be a drag on growth. However South Korea has managed to avoid a hard landing since 2003 and has proactively used macro-prudential measures to limit overall leverage, particularly its external debt vulnerability. There is also a longer-term positive story that should help the global economy to rebalance. Household leverage across most of Asia, particularly in China, India and Indonesia, remains low and has the potential for growth. Indonesia s credit expansion has recently accelerated, but it still has a relatively low level of aggregate debt to GDP, giving it room to use leverage to boost growth. While high debt levels of the government and certain companies in India are a concern (which the authorities are addressing), household debt is relatively low. Taiwan s total leverage is relatively benign its household debt-service ratio is low, and a legally mandated ceiling on the total government debt-to-gdp ratio enforces fiscal discipline

142 Strategic report continued In ASEAN, stresses are confined to household credit in some economies. Malaysia s household leverage is high, as is Singapore s on some metrics. However, both countries household sectors have accumulated high liquid assets through mandatory savings. In Thailand, relatively fast recent credit growth has led to a rise in solvency stress indicators. However, levels of debt and debt-service indicators do not raise immediate concern. The Philippine economy, an outperformer in Asia, has plenty of room to expand its private-sector leverage to boost domestic consumption and sustain growth. While there are pockets of emerging concern, Asia s fundamentals remain robust. Strong government and household balance sheets, high foreign exchange reserves, flexible exchange rates, currency swap agreements between central banks and still-high economic growth across most of the region provide sufficient flexibility for authorities to counter inevitable bumps as the economic cycle turns. Learning from Asia s financial crisis in , governments in the region have been using macro-prudential policies since before they were considered to be best practice. Hong Kong and Singapore are prime examples of how such measures are used to curb property price increases. There is scope for several Asian economies to increase borrowing to maximise their growth potential. In light of this assessment, concern over Asia s debt levels appears exaggerated. It does provide a timely opportunity for cleaning up stressed balance sheets in parts of the region, but it also sets the stage for the next phase of more durable and sustainable growth. The recovery in the US, combined with the revival in Europe and Japan, should be seen as an added bonus, not a detraction, for emerging markets and the wider global economy. Among other risk factors, elections in India, Indonesia, Thailand and Brazil are likely to be the focus of emerging-market companies and investors in A strong mandate for reforms is critical for the next stage of growth in these economies. The Middle East, the South and East China Sea and North Korea remain potential flashpoints, although experience in recent years suggests that pragmatism should prevail to prevent these issues from escalating. There is also a need for better global policy coordination, especially progress on trade liberalisation and clarification on bank regulation. Conclusion All in all, 2014 should see a marked improvement in the global economy. The recovery, so far shouldered by the emerging economies, is likely to broaden with the West joining in. However, the growth gap between the G7 countries and the emerging markets is unlikely to close anytime soon. Challenges lurk as the Fed tries to manage interest-rate expectations. Meanwhile, China is about to enter its most decisive phase of reform as it strives to become a consumer-driven, middle-income economy

143 Strategic report continued People The deep commitment of our people to our brand promise, Here for good, continues to make our culture a great strength. Here for good sums up what we stand for, unifying our people to uphold the highest standards of conduct and integrity. Along with our track record of standing by our clients and customers, these deep-rooted values set us apart from many of our competitors. Reinforcing the importance of conduct within our culture has been a key focus in We refreshed our Group Code of Conduct (the Code ), making it more relevant to our people and the changing requirements they face every day. The refreshed Code clarifies our expectations and provides employees with a new tool to help them make effective decisions. As part of a communication cascade, led by our executives and supported by our business and country leadership teams, managers held dedicated team discussions to clarify the responsibilities of their team members under the Code. This was reinforced by revised guidelines and fact sheets, a new mandatory training module and the introduction of a new annual recommitment process. At the end of 2013, 98 per cent of our employees had completed the new mandatory training and 97 per cent had reconfirmed their commitment to the Code. These results, together with a high usage of our dedicated intranet site, demonstrate our people s commitment to help strengthen our compliance culture. Alongside a refresh of the Code, we introduced six Fair Accountability Principles to guide the way we act and make decisions when something goes wrong. The principles represent a shift to a fairer, more judgement-based approach to potential disciplinary cases, and work to embed them across the organisation has begun. We have already incorporated the principles into our guides on values and behaviours, and reflected them in our refreshed disciplinary and grievance policies. A country-by-country implementation plan is underway to help build understanding and bring about the necessary change in markets where cultural challenges may exist to this more judgment-based approach. We continue to reinforce the importance placed on how conduct and behaviour are reflected in the assessment of objectives and the reward of performance. For more than 10 years, the extent to which employees live our values has been an integral part of our performance management process. We focus review conversations on how results have been achieved as well as what has been delivered. Compliance and risk awareness are essential elements of these conversations. In 2013, managers received additional guidance to ensure that performance and reward decisions reflected the conduct and behaviour demonstrated by individual employees. We introduced a new Effective Supervision Guide, clarified expectations for managers on how to create an appropriate control environment and set out the required responsibilities and accountabilities when things go wrong. As part of their performance review conversations, managers must now ensure that each employee understands their risk and control role and responsibilities in line with the Code and explain how the employee s conduct and approach to risk and control matters has been assessed during the performance year. Within Consumer Banking (CB), we began a series of changes to ensure that we manage employee sales incentive schemes. We have improved the balance between sales targets and key non-financial measures such as adherence to conduct and compliance requirements. In addition, more than 600 branch managers will have started to move from quarterly sales plans, which are focused on business targets, to an annual discretionary award that will include an assessment of broader leadership objectives and behaviours. These changes will help us to place conduct at the heart of our sales incentive arrangements. Building Capability In 2013, our programme of learning focused on supporting our refreshed Code and other regulatory requirements. In addition to the development and roll-out of new mandatory training for the Code, we aligned our learning curriculum to ensure its requirements are reinforced at every opportunity. This included our flagship Day One Readiness and Wholesale Bank Ready induction programmes for 8,500 CB and Wholesale Bank (WB) employees; Client Due Diligence training for 2,100 W B Client Coverage Relationship Managers and staff; and Foreign Account Tax Compliance Act training for nearly 20,000 C B front-line, support and operations employees across our footprint. US Sanctions training has also been implemented, achieving 99 per cent completion of the Office of Foreign Assets Control modules. As part of improvements made to our new joiner process, we began to refresh our global Right Start induction programme, raising the importance of culture, conduct and values. We created a new online version with enhanced conversation guides and dedicated in-country points of contact for managers. Pilots in India and China have shown an improved understanding of our culture and values, enabling new joiners to know what it means to be an employee in Standard Chartered and what it takes to be successful in their role. While the Code provides guidance on how to make the right judgements, we recognise the need to help managers apply this guidance in practice. In response, we refreshed our Operational Risk Framework to ensure effective risk management in respect of our critical processes. We have begun to roll out the refreshed framework across both businesses and functions, including Finance, Legal & Compliance, HR and Risk. Initially, the focus is to embed the framework in nine countries including the UAE, China, Hong Kong, Korea, US, UK, India, Singapore and Pakistan. This work will be completed in In 2013, we made good progress in building our risk and compliance capability, delivering our highest number of employee learning events for three years. However, we recognise that our learning and development framework will need a sharper focus on all aspects of the conduct agenda in Work has already begun to ensure that we can support leaders who need to set the tone

144 Strategic report continued from the top, relentlessly communicating the importance of conduct and helping managers to be vigilant on maintaining our standards. More broadly, we have continued to strengthen our leadership capability, ensuring we develop our leadership cadre, now and in the future, through a number of initiatives: Launch of a new market-specific Emerging Leaders programme in China and Africa, aimed at accelerating the development and readiness of leaders in these key growth markets to assume senior management roles. The programme involves building the capability and capacity of participants to influence the local agenda within the context of the wider Group Continuation of our Women in Leadership and Women s Development Programmes across 15 countries, enabling nearly 400 talented female employees each year to develop the skills and knowledge needed to take on more senior leadership roles within the Group A focus on developing local talent, through our Future Leaders Network, which provides junior employees in markets such as Ghana with the opportunity to build strong work relationships and explore relevant development opportunities. Similarly, in Hong Kong, we launched a local mentoring programme for our women employees, connecting them with senior leaders within the Group to help them develop their careers Work with two local non-government organisations in Chennai, v-shesh and Ability Foundation, to develop a talent pool of people with disabilities in core operations roles. At the end of 2013 we had recruited 106 employees, representing 1 per cent of the almost 10,000 staff employed locally, to provide operational support to a number of Group functions and business teams. We have also developed a more robust and efficient approach to our succession planning, better aligned to global processes. This enables us to make the most of our existing talent and strengthen our business continuity. Creating a strong talent pipeline that meets our future needs remains a priority. In 2013, we hired almost 400 graduates to our two flagship programmes, the International Graduate Programme and the CB Fast Track Programme. We continue to help graduates take a longer-term view on their career and build the right foundations to set them up for future success. In 2014, we will look to strengthen our global internship programme and make it the main path to our full-time graduate programmes. For more than a decade, The Gallup Organisation s Q 12 employee engagement survey, conducted annually, has been a consistent measure of the health of our organisation and an important way of gathering feedback. It has helped our leaders and managers understand what is going well and what they can improve upon. As a result, we have built a highly engaged and productive global workforce and created a distinctive culture. Building on this sustained success, 2013 was the right time to begin developing a new approach, more closely aligned to our future business priorities. We conducted thorough research on best practices and trends enabling us to raise the bar on how we manage and measure the links between engagement and performance. Our new approach, which will be launched in 2014, will allow us to seek views on a wider variety of topics. It will give us more flexibility in gathering feedback, including deep dives with targeted groups of employees, and provide better data that is easier for managers and teams to act upon. Getting fitter and more flexible The macroeconomic environment remains turbulent and the pace of regulatory change continues to increase. In order to stay agile and continue to deliver performance excellence, as well as a compelling experience for our clients, customers and employees, we have to adapt and change, sharpen our focus, and operate more as one bank. In 2013, we continued to focus on improving the operational effectiveness and efficiency of our organisation, and on removing unnecessary complexity. As part of this, in collaboration with the businesses, we have looked to simplify aspects of our organisation design, committees and management groups, and policies and processes. We have revised our regional structure so that, globally, the Group aligns to the same eight regions and the new business structures announced in January 2014 outlines how we will organise ourselves to deliver our strategic aspirations. We have also taken steps to reduce our approval layers and speed up our decision making, consultation and collaboration, minimising the risk of diffused accountability on decision making. As part of a review of organisational effectiveness within our businesses and functions, we have revisited accountabilities at regional levels and simplified decision making, adopting the RACI model defining who is Responsible, Accountable, to be Consulted and Informed as our standard approach. We have completed a mapping exercise of more than 200 meetings and committees across the Group to understand their purpose, core activities and authorities, driving greater consistency and alignment. We have introduced consistent definitions of our committees, meetings and management groups, reviewed the related delegated authorities and created a central repository. In 2013, we also completed a number of end-to-end global process reviews, including the work to improve our on-boarding approach. This work will continue in In addition, we commenced a systematic review of our global policies, revoking over 20 as a result and created a Google search facility to help employees find the relevant policies and procedures more easily. We have continued to improve our internal organisational and analytics capability and begun an investment programme in our core global HR platforms. In 2013, we further enhanced our PeopleSoft Portal, a global HR one-stop shop for the majority of our

145 Strategic report continued workforce across nearly 70 markets. We have simplified the way in which managers input and review performance management information, and streamlined the look and feel of the Portal, making it cleaner and more intuitive for employees. Our approach to recruitment is aligned to our business strategy. In 2013, we hired over 18,500 people to support our business priorities in Asia, Africa and the Middle East. Overall our headcount reduced to more than 86,000, reflecting the difficult global market conditions and our focus on maximising our existing talent. We continued to streamline our recruitment processes to support the needs of our CB business, providing a more agile, scalable approach for volume hiring. We also re-aligned a number of specialists from our dedicated recruitment team with the geographical and functional priorities of our Wholesale Banking business. We strive to create an inclusive environment for all our employees, 47 per cent (more than 40,000), of whom are women, and to improve work-life balance for our people, representing 132 nationalities worldwide. Our diversity and inclusion philosophy emphasises inclusion, with nationality, sexual orientation, gender, and disability as the main focus areas. This approach helps us to attract, retain and develop the best talent, both at Board level and across the wider Group, getting the best out of the broadest spectrum of people in order to sustain strong business performance. In 2013, we have made strong progress in identifying and agreeing targets to increase our gender diversity for each of our businesses, functions and countries. We believe that our inclusive approach enables us to understand the needs of our clients and customers better. Many of our products and services are localised and reflective of the society and customer base that we support. We work hard to ensure that the differences in others are valued and respected. We have made strong progress in identifying and agreeing targets to increase our gender diversity at specific levels for each of our businesses, functions and countries. More broadly, in 2013 we have undertaken a number of initiatives, including: Our first Global Inclusion Day, raising awareness of the importance of inclusion to our clients, customers and employees. This was supported by a guide to Inclusive Meetings and delivery of inclusion awareness training tackling unconscious bias in a number of markets including Turkey, Colombia, Italy, the US, Ghana and Zambia Disability Listening Groups in countries such as Thailand, Singapore, Malaysia and Oman, making us more able to meet the needs of employees with disabilities Disability mentoring days in the US, providing opportunities to challenge existing employees misconceptions about disabilities. This led to the Bank being awarded the New York State Education Department s National Disability Award in October The launch of a Flexibility Charter, encouraging leaders to commit to a broad definition of flexibility, with the aim of improving the productivity, retention and engagement of local employees A reaffirmation of our commitment to enable employees with disabilities to participate fully in our business activities, by providing them with accessible technology solutions. This includes speech software allowing colleagues with visual impairments to hear what is written in a document, talking ATMs and a range of customised work tools, such as variable computer font size and telephone volume, and adjustable automated system response times Summary In 2013, we reinforced the importance of conduct within our culture, gaining significant momentum across the organisation through the successful refresh of the Code and launch of the Fair Accountability Principles. In doing so, we have helped employees to understand how they can prove, through their everyday actions and decisions, that we are Here for good. We have strengthened our performance management practices, ensuring that employees understand their risk and control roles and responsibilities, and enabled managers to make more informed judgements. We have focused on developing our current and future leadership capability and improving organisational agility, by removing complexity, simplifying structures and enhancing a number of global processes. This enabled us to deliver sustainable performance, despite the volatile external environment. We do not take our distinctive culture for granted. In 2014, we will continue to embed the Code and maintain a systematic approach to reinforcing our culture and values, whilst ensuring that our people have a safe and transparent means of raising issues. We will align our reward practices further in response to continued regulatory change. We will continue to remove unnecessary complexity, simplifying our policies and creating clearer responsibilities and accountabilities as we embed the new business structure. We will also continue to review our selection processes for managers and senior leaders and refresh out training to help our employees understand how all of our policies impact their day-to-day roles. Our new approach to employee engagement will be more reflective of the different needs and drivers of our diverse, multi-generational workforce. As part of our focus on enhancing our analytics capability across the Group, we will improve the way we anticipate and manage issues, tune our people strategy and demonstrate that our culture remains strong and effective

146 Financial Review The following Financial Review reflects the restatement of prior period amounts to equity account rather than proportionately consolidate PT Permata Bank Tbk, our joint venture business in Indonesia, following the adoption by the Group of International Financial Reporting Standards (IFRS) 11 from 1 January 2013 (see page 240 to 244 for further details). The Group also adopted IFRS 13 from 1 January 2013, a consequence of which was the recognition of $106 million of fair value gains relating to an own credit adjustment (OCA). The commentary throughout this Financial Review excludes the impact of OCA to better reflect the underlying performance of the Group. Group summary Against a backdrop of ongoing turbulence in the global economy, the Group continues to support the growth and activities of its clients and customers, and generated a diverse mix of income across businesses, markets and products. Operating income remained resilient, flat compared to 2012 at $18,724 million, with Hong Kong and the Africa region generating growth of 11 per cent and 10 per cent respectively, offsetting income challenges in Korea and the Other Asia Pacific region. Profit before tax, excluding OCA and the impact of a $1 billion impairment charge relating to our Korea business (see page 213 for further details) for 2013 and the settlements with the US settlements in , fell 7 per cent to $6,873 million. The fall in profit is primarily due to lower levels of Transaction Banking income in Wholesale Banking (WB) and higher levels of impairment in the unsecured book in Consumer Banking (CB). Profit before taxation on a statutory basis fell 12 per cent to $5,979 million. CB income increased 2 per cent to $7,162 million although operating profit fell 13 per cent to $1,518 million, impacted by a higher impairment charge. WB income fell 2 per cent to $11,456 million and operating profit was 8 per cent higher at $5,590 million. Excluding the impact of the US settlements in 2012, operating profit fell 5 per cent. The normalised cost to income ratio was lower at 54.6 per cent compared to 57.4 per cent in Costs remain tightly controlled and, excluding the impact of the US settlements in 2012, rose 1 per cent. Asset quality in both businesses remains good and 73 per cent of the CB loan book is fully secured and 64 per cent of WB customer loans have a tenor of less than one year. CB loan impairment increased driven by the seasoning effects of growth in the unsecured book, increased levels of provisioning in Korea relating to the Personal Debt Rehabilitation Scheme (PDRS) and lower levels of debt sales. Impairment in WB also rose due to a smaller number of accounts in India and Africa. The Group s balance sheet remains very strong and resilient - well diversified, conservative, with limited exposure to problem asset classes. The Group continues to be highly liquid and our advances-to-deposits ratio remained strong at 75.7 per cent, and up from 73.9 per cent at the end of Following strong growth in the second half of 2012, the growth in deposit balances moderated slightly during 2013 with good growth in the Americas and Europe regions and Hong Kong being partly offset by lower balances in Korea and in the Other Asia Pacific region. The Group maintains a conservative funding structure with only limited levels of refinancing required over the next few years and we continue to be a significant net lender to the interbank market. The Group remains well capitalised with a Core Tier 1 ratio of 11.8 per cent at 31 December 2013, slightly up from 11.7 per cent at the end of 2012 primarily due to equity generation. We continue to be confident in the strong underlying growth potential in the markets in which we operate and we remain committed to our strategy banking the people and companies driving investment, trade and the creation of wealth across Asia, Africa and the Middle East. Operating income and profit 2013 OCA/Goodwill impairment Excluding OCA/Goodwill impairment 2012 US settlements Excluding US settlements Better/(Worse) $million $million $million $million $million $million % Net interest income 11,138-11,138 10,776-10,776 3 Fees and commissions income, net 4,106-4,106 4,075-4,075 1 Net trading income 2, ,383 2,760-2,760 (14) Other operating income ,094-1,094 (9) Non- interest income 7, ,480 7,929-7,929 (6) Operating income 18, ,618 18,705-18,705 (0) Operating expenses (10,225) - (10,225) (10,734) (667) (10,067) (2) Operating profit before impairment losses and taxation 8, ,393 7,971 (667) 8,638 (3) Impairment losses on loans and advances and other credit risk provisions (1,617) - (1,617) (1,196) - (1,196) (35) Other impairment (1,129) (1,000) (129) (196) - (196) 34 Profit from associates and joint ventures Profit before taxation 5,979 (894) 6,873 6,761 (667) 7,428 (7) 1 The US authorities comprise The New York Department of Financial Services (DFS), the Office of Foreign Assets Control (OFAC), the New York County District Attorney s Office (DANY), the United States Department of Justice (DOJ) and the Federal Reserve (NYFED) 144

147 Financial Review continued Group performance Operating income reduced by $19 million, to $18,724 million. On a constant currency basis, income rose 1 per cent. The Group s income streams continue to be well diversified and we generated income of over $100 million in 25 markets. CB income was 2 per cent higher at $7,162 million, with double-digit growth in Hong Kong and in the Africa region, partly offset by lower income in Korea. Growth in Cards, Personal Loans and Unsecured Lending (CCPL) income, up 5 per cent, and Mortgages and Auto Finance income, up 10 per cent, offset the impact of lower Deposits income, which fell 8 per cent as margins remained compressed during the year. Wealth Management income rose 2 per cent as good growth in equity-linked products (particularly funds) was partly offset by lower income from foreign exchange-related products. WB income was 2 per cent lower, at $11,456 million although client income remained resilient, rising 4 per cent. Transaction Banking income fell despite good levels of client activity due to margin compression across most of our markets. This was offset by a strong performance from Corporate Finance and Foreign Exchange (FX). Own account income fell 25 per cent and was impacted by a significant deterioration in emerging markets sentiment in the second half of 2013 which primarily impacted our Financial Markets and Principal Finance businesses. Own account income was also impacted by lower income in Asset & Liability Management. Net interest income increased by $362 million, or 3 per cent to $11,138 million. The Group net interest margin of 2.1 per cent was lower compared to In CB, net interest income grew $157 million, or 4 per cent, to $4,945 million. Mortgage margins improved and while margins on unsecured products declined, this was offset by good levels of growth in average balances. WB net interest income increased $205 million, or 3 per cent. Growth in loans and advances helped to offset significant margin compression particularly in Trade and Cash products. Non-interest income, which comprises net fees and commissions, trading and other operating income fell by $343 million to $7,586 million. Net fees and commissions income increased by $31 million, or 1 per cent, to $4,106 million. Fee income in CB grew due to increased sales of equity-linked products in Wealth Management. Fees in WB fell primarily due to lower levels of fee income from Corporate Finance transactions as this business has increasing levels of annuity income. Net trading income fell $271 million, or 10 per cent, to $2,489 million, as growth in income from FX products was more than offset by a weaker performance from Rates and lower mark to market gains in Principal Finance. Other operating income, which primarily comprises gains arising on sale from the investment securities portfolio, aircraft and shipping lease income, fixed asset realisations and dividend income, fell $103 million, or 9 per cent, to $991 million. Higher operating lease rental income, up $138 million, was offset by lower realisations from the available-for-sale portfolio, down $88 million, and a fair value loss of $49 million relating to entities held for sale in Korea. Operating expenses fell $509 million, or 5 per cent, to $10,225 million. Excluding the impact of the $667 million settlements with the US authorities in 2012, operating expenses increased 1 per cent. While we continue to manage expenses tightly, we have continued to make targeted investments in both businesses although at lower levels than in previous years. Depreciation from our transport leasing business increased by $58 million, reflecting increased levels of investment in prior years. Staff costs increased by 1 per cent compared to 2012, reflecting underlying inflation in many of our markets, lower levels of variable compensation and lower period end staff numbers. Expenses were also impacted by a non-recurring tax charge in Korea of $54 million in The cost of the UK bank levy rose $92 million to $266 million which was partly offset by a refund of $31 million relating to prior periods to take the net charge for the year to $235 million. Pre-provision profit (excluding the impact of the 2012 settlements with the US authorities) was lower by $245 million, or 3 per cent, at $8,393 million. Loan impairment increased by $421 million, or 35 per cent, to $1,617 million. Impairment in CB, which has a largely secured loan book, increased by $360 million, driven primarily by the expected seasoning impact of the growth in the unsecured loan book, the impact of PDRS in Korea and lower levels of loan sales, particularly impacting Other Asia Pacific. WB impairment increased by $61 million and related to a small number of large exposures in India and Africa. Asset quality across both businesses remains good, and we continue to closely monitor our portfolios for stress in line with our proactive approach to risk management. Other impairment, excluding the $1 billion goodwill impairment charge against our Korean business, fell to $129 million reflecting lower write-downs of Private Equity investments was also impacted by a write-down of $70 million relating to associate investments. Profits from associates and joint ventures grew $44 million to $226 million, reflecting a strong performance from China Bohai Bank. Profit before taxation, excluding the impact of goodwill impairment in 2013 and of the US settlements in 2012, fell $555 million, or 7 per cent, to $6,873 million. Hong Kong remained our largest profit generator, growing operating profit by 15 per cent, while MESA grew profits 33 per cent. This helped to offset the performance in Korea, which moved from a profit of $515 million in 2012 to a loss of $20 million in The Group s effective tax rate (ETR) was 31.3 per cent, up from 27.1 per cent in 2012, primarily due to the impact of nondeductible goodwill impairment and change in profit mix

148 Financial Review continued Balance Sheet (decrease) Increase/ Increase/ (decrease) $million $million $million % Assets Advances and investments Cash and balances at central banks 54,534 60,537 (6,003) (10) Loans and advances to banks 83,701 67,796 15, Loans and advances to customers 290, ,638 10,946 4 Investment securities held at amortised cost 2,676 3,851 (1,175) (31) 431, ,822 19,673 5 Assets held at fair value Investment securities held available-for-sale 99,703 95,374 4,329 5 Financial assets held at fair value through profit or loss 29,176 27,076 2,100 8 Derivative financial instruments 62,161 49,495 12, , ,945 19, Other assets 51,143 47,009 4,134 9 Total assets 673, ,776 42,902 7 Liabilities Deposits and debt securities in issue Deposits by banks 43,418 36,427 6, Customer accounts 381, ,874 8,192 2 Debt securities in issue 45,939 41,445 4, , ,746 19,677 4 Liabilities held at fair value Financial liabilities held at fair value through profit or loss 23,030 23,064 (34) - Derivative financial instruments 62,289 48,194 14, ,319 71,258 14, Subordinated liabilities and other borrowed funds 22,147 22,873 (726) (3) Other liabilities 49,700 46,019 3,681 8 Total liabilities 627, ,896 36,693 6 Equity 46,089 39,880 6, Total liabilities and shareholders' funds 673, ,776 42, Amounts have been restated as explained in note 46 Balance sheet The Group remains disciplined in its focus on sustaining a strong balance sheet, which continues to be highly liquid, diversified and conservatively positioned. Growth has been robust on both sides of the balance sheet and we continued to focus on the principle of funding before lending. The Group is predominantly deposit funded and our advances to deposits ratio remains low at 75.7 per cent, up from 73.9 per cent in We continue to be a net lender into the interbank market, particularly in Hong Kong and in the Other Asia Pacific and, Americas, UK & Europe regions. We continue to see good demand for our paper and our funding structure remains conservative, with limited levels of refinancing required over the next few years. The Group remains well capitalised and our Core Tier 1 ratio of 11.8 per cent was slightly higher than 2012, due to equity generation. The profile of our balance sheet remains stable, with 70 per cent of our financial assets held on amortised cost basis, which reduces the risk of short term distress shocks, and 58 per cent of total assets have a residual maturity of less than one year. The Group has low exposure to problem asset classes, no direct sovereign exposure (as defined by the European Banking Authority (EBA)) to Greece, Ireland, Italy, Portugal and Spain and immaterial direct exposure to the remainder of the eurozone. Total assets/liabilities grew by $42.9 billion, or 7 per cent, during the year. On a constant currency basis, growth was 6 per cent as some of the Asian currencies depreciated in the second half of 2013 against the US dollar particularly the Indian rupee and the Korean won. Balance sheet growth was largely driven by an increase in lending to banks and customers. Surplus liquidity was held with central banks, deployed in net interbank funding, or held in liquid investment securities that meet the more stringent regulatory liquidity requirements. Derivative mark to market increased, largely reflecting increased levels of activity but lower levels of market volatility

149 Financial Review continued Cash and balances at central banks Cash balances decreased by $6 billion, or 10 per cent, compared to During the year, we have deployed some of our surplus liquidity into the interbank market although we continue to hold substantial balances at central banks. Loans and advances Loans and advances to banks and customers, which include those held at fair value, grew by $29 billion, or 8 per cent, to $382 billion. CB portfolios, which represents 44 per cent of the Group s customer advances at 31 December 2013, fell by $0.6 billion to $129.8 billion. The decline was primarily due to lower balances in Korea, down $5.4 billion, where Mortgages fell as the market continues to be impacted by regulatory restriction and CCPL products also reduced as we tightened underwriting criteria and de-risked the portfolio. We did however originate and distribute $3 billion of fixed rate mortgages under the Korea Mortgage Purchase Program. Excluding Korea, lending increased by $4.8 billion, reflecting higher Mortgages in Hong Kong and good growth in Private Banking lending in Singapore and payroll-linked personal lending in the MESA and Africa regions The WB portfolio remains well diversified by geography and client segment and the business continues to strengthen and deepen relationships across a broader base. Customer advances grew by $12 billion, or 8 per cent, to $166.9 billion. Lending increased strongly in Singapore, up 18 per cent, Hong Kong, up 17 per cent, and Americas, UK and Europe, up 7 per cent, driven by the continued ability of these geographies to support cross border business originating across the network. Growth was seen across a broad range of industry sectors, reflecting increased trade activity and continued focus on commerce, manufacturing and financing sectors which make up 64 per cent of the WB customer lending. Loans to banks increased by 26 per cent mainly as a result of trade-related growth within China and in Americas, UK & Europe. Treasury bills, debt and equity securities Treasury bills, debt and equity securities, including those held at fair value, grew by $3.2 billion to $123.8 billion, largely due to more stringent liquidity requirements, especially in the UK, which have necessitated higher holdings. The maturity profile of our investment book is largely consistent with 2012, with around 45 per cent (2012: 49 per cent) of the book having a residual maturity of less than 12 months. Derivatives Unrealised mark-to-market asset positions were $12.7 billion higher compared to 2012, reflecting higher levels of client activity but lower levels of volatility across interest rate, commodity and foreign exchange contracts. Our risk position continues to be largely balanced, resulting in a corresponding increase in negative mark-to-market positions of $14 billion. Of the $62 billion asset mark to market positions, $46 billion is available to offset through master netting agreements. Deposits The Group has continued to see good deposit growth in both businesses. Deposits by banks and customers, including those held at fair value, increased by $12.7 billion, of which the increase in deposits by banks was $7 billion. Customer deposit growth was primarily driven by Hong Kong, and in the Americas, UK & Europe and Africa regions which more than offset lower deposits in a number of other regions. Current and savings accounts (CASA) continue to be the core of the customer deposit base, growing 5 per cent compared to 2012 and constituting over 50 per cent of customer deposits. Debt securities in issue, subordinated liabilities and other borrowed funds Debt securities in issue, together with those held at fair value, grew 13 per cent to $52.8 billion as we continued see strong demand for our paper. This included the issuance of $2 billion 10 year subordinated notes. Subordinated debt decreased by $0.7 billion, or 3 per cent, on the back of redemptions during the year. Equity Total shareholders equity increased by $6.2 billion to $46.1 billion due to profit accretion of $4.1 billion and $5.7 billion capital injection through new share issuance, which were partly offset by foreign exchange translation losses of $1.3 billion and $2 billion dividends paid to shareholders

150 Financial Review continued Consumer Banking The following tables provide an analysis of operating profit by geography for Consumer Banking: Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe Consumer Banking Total $million $million $million $million $million $million $million $million $million Operating income 1, ,043 1, ,162 Operating expenses (798) (548) (838) (1,188) (305) (495) (331) (144) (4,647) Loan impairment (139) (78) (371) (310) (38) (63) (22) (13) (1,034) Other impairment - - (2) (1) (4) (7) Profit from associates and joint ventures Operating profit/(loss) (168) ,518 Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe Consumer Banking Total $million $million $million $million $million $million $million $million $million Operating income 1, ,184 1, ,021 Operating expenses (772) (554) (796) (1,211) (319) (490) (307) (151) (4,600) Loan impairment (95) (62) (223) (186) (27) (51) (20) (10) (674) Other impairment - - (1) (36) (8) (45) Profit from associates and joint ventures Operating profit ,745 An analysis of Consumer Banking income by product is set out below: 2013 vs Better/(worse) Operating income by product $million $million % Cards, Personal Loans and Unsecured Lending (CCPL) 2,795 2,668 5 Wealth Management 1,293 1,268 2 Deposits 1,411 1,526 (8) Mortgages and Auto Finance 1,422 1, Other (8) Total operating income 7,162 7,

151 Financial Review continued Performance in 2013 Operating income in Consumer Banking (CB) increased $141 million, or 2 per cent, to $7,162 million with pre-provision profit rising 4 per cent. However operating profit fell $227 million, or 13 per cent, to $1,518 million due to higher levels of impairment. Excluding Korea, which generated a loss of $168 million for the year, income rose 5 per cent and operating profit increased 7 per cent. Income in CB remains diverse, with double-digit income growth in Hong Kong and Africa offsetting lower levels of income in Korea and Americas, UK & Europe. Net interest income increased by $182 million, or 4 per cent, to $4,945 million. Higher asset and liability volumes helped offset lower margins on unsecured and current and savings accounts (CASA) products. Mortgage volumes remained subdued as a result of cooling measures and regulatory restrictions in several of our markets. Mortgage margins improved, however, reflecting our ability to increase pricing in a number of markets. CCPL margins were 26 basis points (bps) lower than 2012, although Credit Card margins improved during the second half of 2013 and while volumes were up strongly against 2012, growth was concentrated in the first half of Liability margins remained under pressure, with CASA down 21 bps compared to 2012, offset by good growth in CASA balances in Hong Kong and Singapore. Non-interest income declined $41 million, or 2 per cent, to $2,217 million. The decrease was primarily due to higher levels of Wealth Management income reflecting an increase in sales of equity-linked products offset as growth slowed markedly in the second half of 2013 due to adverse market conditions across our footprint and the fair value loss of $49 million relating to businesses held for sale in Korea. Excluding the impact of a fair value loss of $49 million on businesses held for sale and a $39 million property gain in 2012, non-interest income rose 2 per cent. Expenses were up $47 million, or 1 per cent, to $4,647 million. While staff costs fell on the back of lower headcount and efficiency initiatives, this was more than offset by the impact of a non-recurring tax cost of $41 million in Korea and continued investments in the franchise, particularly targeted in the growth markets of Hong Kong, India, UAE and Africa. Loan impairment increased by $360 million, or 53 per cent, to $1,034 million. More than half of the increase related to lower levels of debt sales compared to 2012 coupled with increased provisioning in Korea due to an acceleration in the amount of filings under PDRS. The remainder of the increase primarily reflected the maturation of unsecured lending acquired between 2010 and 2012 with impairment levels for the other product segments remaining relatively stable. Product performance Income from CCPL grew $127 million, or 5 per cent, to $2,795 million. Although period end CCPL balances fell, particularly in Korea and Taiwan, income grew reflecting increased fee income which offset the impact of margin compression. Margins were affected by a change in product mix and the impact of regulatory reforms. Wealth Management income rose 2 per cent to $1,293 million and income remained well diversified across equity-linked and nonequity linked products such as bancassurance. Equity-linked products grew strongly in the first half of the year but declined in the second half of the year reflecting market sentiment. Deposits income fell by $115 million, or 8 per cent, to $1,411 million. CASA balances grew strongly, particularly in Hong Kong and Singapore. This growth was more than offset by the impact of margin compression as competition intensified and interest rates remained low across our footprint with declines in some markets such as Korea and Pakistan. The pace of compression moderated in the second half of 2013 partly aided by a gradual exit of higher cost time deposits in Korea, Singapore and Malaysia. Mortgages and Auto Finance income rose by $124 million, or 10 per cent, to $1,422 million. While margins and balances increased in Hong Kong, a number of markets were affected by regulatory constraints. This included Singapore, which was also impacted by margin compression, and Korea, where balances declined compared to However, we originated and transferred $3 billion of fixed rate mortgages during the year under the Korea Mortgage Purchase Program. Other income, which predominantly includes SME related trade and other transactional income, fell 8 per cent. Excluding the $49 million fair value loss on businesses held for sale in 2013 and $39 million of property gains in 2012, income increased reflecting strong SME revenues across Hong Kong, Malaysia, MESA and India. Geographic performance Hong Kong Income rose $148 million, or 10 per cent, to $1,559 million. There was strong growth in Mortgages on the back of good asset growth coupled with higher margins with a continued focus on originating new business in higher margin Prime rate based products. Wealth Management also delivered good growth as a result of increased unit trust sales and higher transaction volumes in foreign exchange and securities services. Income from SME improved benefiting from higher trade volumes. There was more moderate growth in CCPL as higher volumes from personal loans was partially offset by continued margin compression and the impact of credit card regulatory reforms. Income from Deposits declined as a result of narrower spreads but was partially offset by good volume growth, particularly in CASA. Renminbi (RMB) deposits continued to grow strongly throughout the year. Operating expenses increased by $26 million, or 3 per cent, to $798 million. Expenses continue to be tightly managed and the increase was primarily due to the flow-through of prior year investments in the branch network and in system infrastructure. Pre-provision profit was up $122 million, or 19 per cent, to $761 million. Loan impairment was $44 million higher at $139 million, reflecting the seasoning impact of growth in unsecured lending, as expected, together with lower recoveries. A series of tightening measures on underwriting criteria for unsecured products were implemented in 2013 for selected higher risk customer segments. Operating profit rose $78 million, or 14 per cent, to $622 million

152 Financial Review continued Singapore Income rose $4 million, to $979 million in tough market conditions. CCPL income was marginally lower as the growth in average balances was offset by lower margins reflecting a change in product mix. Mortgage income was impacted by margin compression and regulatory cooling measures. Deposits income rose largely due to volume growth for CASA, partially offset by lower margins reflecting increased competition for foreign currency deposits. Wealth Management was flat as the benefit from an increase in funds and bancassurance revenue was partially offset by lower equity sales due to less favourable market sentiment. Operating expenses fell $6 million, or 1 per cent, to $548 million, primarily due to lower staff costs as headcount reduced. Pre-provision profit was 2 per cent higher at $431 million. Loan impairment rose by 26 per cent, or $16 million, to $78 million due to the maturing of the unsecured portfolio. Operating profit reduced by $6 million to $353 million. Korea Income was down $141 million, or 12 per cent, to $1,043 million. On a constant currency basis, income fell 14 per cent. Excluding the $49 million fair value loss for businesses classified as held for sale in 2013 and a $39 million property gain in 2012, income fell 4 per cent. CCPL income increased although volumes declined as we tightened underwriting standards. Mortgages continued to be affected by a number of headwinds and income fell as balances declined although margins saw improvement. We continued to originate and transfer fixed rate mortgages under the Mortgage Purchase Programme transferring $3 billion in the year until the quota allocated to the Group was exhausted in the first half of Deposits income was lower, due to margin compression as a result of the falling interest rate environment although this was partly offset by the benefit from exiting lower margin Time Deposits and growth in CASA balances. Wealth Management income declined impacted by poor investor sentiment and a sharp decline in insurance volume industry-wide as new tax law changes took effect. Income from SMEs fell due to margin compression and increased competition from local banks. Operating expenses rose $42 million, or 5 per cent, to $838 million. On a constant currency basis expenses fell 1 per cent. Excluding the impact of a non-recurring tax cost of $41 million, expenses were broadly flat reflecting tight cost management despite inflationrelated increases in salary costs. Pre-provision profit fell by $183 million at $205 million. Loan impairment was up $148 million, or 66 per cent, to $371 million due to a market-wide acceleration in the amount of filings under the PDRS and in response we have undertaken a number of further de-risking actions during 2013 to tighten underwriting criteria for unsecured products. As a result of the above factors, Korea moved to a loss of $168 million in the current year, compared to a profit of $164 million in Other Asia Pacific Income in the region rose $19 million, or 1 per cent, to $1,616 million. Income in China increased by 8 percent to $321 million, reflecting continued growth in Personal Loan and Mortgage income, improved Mortgage margins, and strong Wealth Management income from increased bancassurance. This was partially offset by lower Deposits income as margins were compressed. Income from SMEs also fell as margins were compressed across key deposit products coupled with slower asset growth. Income in Taiwan fell 2 per cent to $414 million. Deposit income increased, benefiting from a change in mix to higher margin Time Deposits and Wealth Management income was also higher on the back of market sentiment. This was more than offset by lower income from CCPL and Mortgages which were both impacted by regulatory cooling measures. Income in Malaysia rose 5 per cent with broad based growth across all product lines. Income from CCPL grew strongly as margins improved, although the pace of growth slowed in the second half of 2013 as regulatory restrictions affected Personal Loan volumes. Wealth Management income rose, although equity-linked products were impacted by market uncertainties in the second half of Operating expenses for the region were $23 million, or 2 per cent, lower at $1,188 million. Expenses in China were tightly controlled and broadly flat compared to Pre-provision profit was up $42 million, or 11 per cent, to $428 million. Loan impairment rose $124 million, or 67 per cent, at $310 million. Impairment in Taiwan rose $47 million reflecting lower levels of portfolio sales in the current year while impairment in China increased $9 million to $35 million. Impairment in Thailand also increased due to a specific segment to which sales have now been discontinued. Operating profit was lower by $47 million, or 23 per cent, at $160 million. Operating profit in Taiwan fell $48 million, or 36 per cent, to $85 million. The operating loss in China decreased to $88 million from $104 million in India Income rose $25 million, or 6 per cent, to $465 million. On a constant currency basis, income increased by 16 per cent. Mortgage income was up due to higher margins and benefitted from the portfolio acquisitions in CCPL also benefitted from higher volumes on the back of portfolio acquisitions and improved margins. This benefit was partly offset by lower Deposits income as margins were impacted by the low interest rate environment. Wealth Management income fell slightly due to weak local market sentiment. Income from SMEs grew strongly on the back of wider margins and increased volumes on a constant currency basis. Operating expenses were $14 million, or 4 per cent, lower at $305 million. On a constant currency basis, expenses increased by 5 per cent, reflecting increased investment in technology

153 Financial Review continued Pre-provision profit was up $39 million, or 32 per cent, to $160 million. Loan impairment was higher by $11 million, or 41 per cent, at $38 million due to volume growth from acquired unsecured portfolios. Operating profit was higher by $24 million, or 26 per cent, at $118 million. On a constant currency basis, operating profit was 37 per cent higher. Middle East and Other South Asia (MESA) Income across the region, over half of which relates to the UAE, was up $48 million, or 6 per cent, to $797 million. The impact of a fall in Deposits income was more than offset by higher income from CCPL, Wealth Management and Mortgages. Income in the UAE increased by 14 per cent and was broad based. CCPL income grew reflecting good momentum in payroll-linked Personal Loan products. Mortgages income rose strongly as volumes increased on the back of an improving property market while Deposits income was slightly lower as margins narrowed. Wealth Management income also increased, reflecting improved market sentiment. Operating expenses in MESA rose 1 per cent to $495 million. While UAE expenses were up 5 per cent, reflecting flow through of prior period investments in front line sales capacity, expenses in most other markets were well controlled reflecting tight cost discipline across the region. Pre-provision profit for MESA was up $43 million, or 17 per cent, to $302 million. Loan impairment rose $12 million, or 24 per cent, to $63 million as the prior period benefitted from provision releases in the UAE. MESA operating profit increased 15 per cent, up $31 million to $239 million. Africa Income was up $47 million, or 10 per cent, at $529 million. On a constant currency basis, income was up 15 per cent. Income from CCPL grew strongly on the back of good volume growth in payroll linked personal loans. Mortgages income also grew strongly as margins improved and Wealth Management benefitted from increased sales of bancassurance products. Income from SME clients benefitted from increased trade related revenues. Kenya continues to be the largest CB income generator in the region and income grew 11 per cent. Strong income growth in CCPL was partly offset by lower Deposit margins. Ghana and Zambia grew income at 21 per cent and 19 per cent respectively. Income growth in Ghana was driven by higher Deposit and SME income, partly offset by lower income from CCPL. Zambia saw good growth in both CCPL and Deposit income. Income in Nigeria was up 7 per cent and benefitted from good growth in CCPL and Wealth Management income, partly offset by lower Deposits income as margins compressed. Operating expenses were $24 million, or 8 per cent, higher at $331 million. On a constant currency basis, expenses were 13 per cent higher, as we continued to build out the distribution network across the region in line with our strategy. Pre-provision profit in Africa was higher by $23 million or 13 per cent, at $198 million. Loan impairment was up $2 million to $22 million. Operating profit was up $21 million, or 14 per cent, to $176 million. On a constant currency basis, operating profit increased 19 per cent. Americas, UK & Europe The business in this region is primarily Private Banking in nature and focuses on delivering our product suite to international customers from across our network. Income fell $9 million, or 5 per cent to $174 million. Excluding the gain of $13 million relating to the disposal of our Private Banking operations in Miami in 2012, income rose 2 per cent. The benefit from higher revenue from Private Banking mortgages, reflecting improved margins, was partly offset by lower Wealth Management income, where sales of foreign exchange related products declined. Deposits income also fell, impacted by margin compression although margins started to stabilise in the second half of the year. Operating expenses fell $7 million, or 5 per cent, to $144 million as we continued to tightly manage costs. Impairment was higher by $3 million to $13 million. Operating profit rose $4 million, up 29 per cent, to $18 million

154 Financial Review continued Wholesale Banking The following tables provide an analysis of operating profit by geographic segment for Wholesale Banking: Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe Wholesale Banking Total $million $million $million $million $million $million $million $million $million Operating income 1 2,160 1, ,831 1,224 1,402 1,217 1,989 11,456 Operating expenses (876) (584) (286) (938) (396) (590) (534) (1,139) (5,343) Loan impairment 4 (10) (56) (105) (157) (4) (248) (7) (583) Other impairment (4) 10 (27) (2) (101) (122) Profit and associates and joint ventures Operating profit 1 1, ,590 Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe Wholesale Banking Total $million $million $million $million $million $million $million $million $million Operating income 1,939 1, ,078 1,147 1,483 1,112 2,025 11,684 Operating expenses (802) (617) (286) (1,051) (435) (608) (478) (1,683) (5,960) Loan impairment (14) (4) (26) (35) (138) (265) (18) (22) (522) Other impairment (7) (2) (7) (121) 9 (32) - 9 (151) Profit from associates and joint ventures Operating profit 1, , ,190 1 Operating income and operating profit excludes Own credit adjustment of $106 million Performance in 2013 Operating income fell $228 million, or 2 per cent, to $11,456 million and operating profit rose $400 million, or 8 per cent, to $5,590 million. Excluding the $667 million cost relating to the US settlements in 2012, operating profit fell 5 per cent. Income remains well diversified across both products and geographies, with Hong Kong growing income by 11 per cent to exceed $2 billion for the first time. This partly offset lower levels of income across all other regions except India and Africa. Client income, which constitutes over 80 per cent of WB income, increased by 4 per cent compared to 2012 supported by strong growth in client activity levels and volume increases across Transaction Banking and Financial Markets products. Commercial Banking, which includes Transaction Banking, Lending and flow Foreign Exchange (FX), contributes over half of client income and continues to be the core of the WB business. Own account income fell 26 per cent compared to 2012, as challenging market conditions during the second half of the year adversely impacted Financial Markets (FM) and Principal Finance. ALM was also impacted by low reinvestment yields across the year due to the low interest rate environment. Net interest income was up $180 million, or 3 per cent, to $6,193 million as the benefit from higher lending margins and Trade volumes offset margin compression across Trade and Cash products. Non-interest income fell $302 million, or 5 per cent, to $5,369 million. Income from Financial Markets (FM) fell by $23 million to $3,638 million, with a strong performance from Foreign Exchange offset by lower income from Rates and Capital Markets. ALM income fell by 10 per cent reflecting lower reinvestment yields. Corporate Finance income grew strongly, up 13 per cent, supported by growth across our financing businesses. Income in Principal Finance fell by 43 per cent, primarily due to lower valuation gains. Operating expenses fell $617 million, or 10 per cent, to $5,343 million. Excluding the impact of the $667 million settlements with the US authorities in 2012, expenses increased by 1 per cent. We maintained strong expense discipline with staff costs reflecting lower levels of variable compensation. This partly offset increased regulatory and compliance costs, higher depreciation from our leasing business and targeted investments in systems and infrastructure to better support clients. Loan impairment increased by $61 million to $583 million, driven by a small number of clients in Africa and India. India was also impacted by several smaller-sized exposures as the economic environment deteriorated. The Group s portfolio remains predominantly short tenor with 64 per cent of loans and advances maturing in less than one year. Credit quality continues to be good. Other impairment was lower by $29 million, or 19 per cent, at $122 million, driven by lower Private Equity charges and higher recoveries on disposal of previously impaired investments. Profit from associates and joint ventures increased strongly due to a good performance from Bohai Bank in China

155 Financial Review continued Product performance Lending and Portfolio Management income fell by $23 million, or 3 per cent, to $815 million as the impact of higher margins was more than offset by lower average balances and increased portfolio management costs. Transaction Banking income fell $177 million, or 5 per cent, at $3,463 million. Trade income fell 4 per cent despite strong growth in average assets and contingents as margins compressed, down 27 bps compared to 2012, due to surplus liquidity across our markets and a greater proportion of income derived from lower margin financial institution clients. Trade margins did, however, start to stabilise towards the end of the year. Cash Management and Custody income fell 6 per cent and was also impacted by net interest margin compression, down 15 bps, due to the continuing lower interest rate environment. This was partly offset by strong growth in average assets and higher custody income. Global Markets income was broadly flat at $7,178 million. Within Global Markets, the Financial Markets business, which primarily comprises sales and trading of foreign exchange and interest rate products, is the largest contributor to income and continues to have diverse income streams. FM income was $23 million lower at $3,638 million as the second half of 2013 was impacted by a dramatic shift in market conditions driven by the uncertainty over the tapering of quantitative easing (QE) by the US Federal Reserve, negative emerging market sentiment and regulatory changes. This particularly affected own account income, which fell 25 per cent compared to Within this, Rates income was driven lower as rising bond yields impacted our inventory positions that are held for market making in emerging market bonds. Despite the challenging market conditions, client income, which represents over 80 per cent of FM income, remained resilient and rose 7 per cent underpinned by strong growth in FX income. FX income rose 10 per cent, with good growth in FX option volumes driven by client flows in North East Asia and South Asia together with a strong uplift from G10 currency pairs. Cash FX also grew on the back of higher volumes. This was partly offset by lower spreads compared to Rates income fell 5 per cent largely reflecting the challenging market conditions in the second half of Commodities and Equities income fell 3 per cent. Client hedging activity declined, as markets saw low levels of volatility across most asset classes. Equities derivatives income increased on the back of new product offerings. Capital Markets income fell 6 per cent, as lower market issuance levels in our footprint impacted Debt Capital Markets volumes. In loan syndications, margin compression was offset by increased origination activity. Credit and other income fell by 16 per cent, primarily impacted by challenging market conditions. ALM income was $86 million, or 10 per cent, lower at $752 million reflecting the continued increase in asset allocation to higher quality, lower yielding liquid assets and from lower reinvestment yields. Corporate Finance income rose $288 million, or 13 per cent, to $2,512 million with a strong performance from all financing businesses benefiting from the focus on deepening relationships with existing clients. We saw particularly strong growth in Structured Finance driven by the continued expansion of our leasing business and in Strategic Finance due to acquisition financing in our footprint. Equity Capital Markets income also increased significantly with record transaction volumes and improved market ranking in Asia. Principal Finance income fell by $207 million, or 43 per cent, to $276 million impacted by lower mark-to-market gains on equity investments due to adverse market sentiment across our investment footprint. Geographic performance Hong Kong Income was up $221 million, or 11 per cent, to $2,160 million. Client income up rose strongly, up 14 per cent, as FM delivered strong broad based growth with higher RMB FX income as a result of the growing opportunities arising from RMB internationalisation. There was also strong growth in Capital Markets income with higher volumes from Syndications. Income from Corporate Finance grew strongly as a result of the continuing expansion of the transport leasing business. Transaction Banking income declined mainly due to continued compression of Trade and Cash margins although margins began to stabilise during the second half of Own account income decreased on account of weaker Equities trading results. Hong Kong continues to leverage the Group s network as a hub into and out of China and inbound revenues from China continued to grow but at a more moderate pace. Operating expenses grew $74 million, or 9 per cent, to $876 million, primarily driven by depreciation of assets held by the transport leasing business. We continued to manage other expenses tightly. Pre-provision profit was higher by $147 million, or 13 per cent, at $1,284 million. Loan impairment was lower by $18 million. There was a net recovery of $4 million on loan impairments compared to a net charge of $14 million in Operating profit was up $168 million, or 15 per cent, at $1,284 million. Singapore Income fell $113 million, or 9 per cent, to $1,117 million. An increase in client income of 5 per cent was more than offset by weak second half own account income. Transaction Banking and Lending income fell despite the growth in average balances as increased competition compressed margins. Corporate Finance income increased on the back of asset growth, higher recurring income and robust deal pipeline conversion. FM client income excluding Capital Markets was up driven by growth in FX volume, product diversification in Commodities and increased equity underwriting activities. Capital Markets income was reduced as the local markets contracted on QE tapering expectations. Own account income declined due to reduced risk appetite as markets reacted to QE

156 Financial Review continued tapering. ALM performance was also impacted by costs of investing in higher quality liabilities and more liquid assets. Our Singapore business was particularly impacted by the adverse market conditions in the second half due to its position as a regional hub. Operating expenses fell by $33 million, or 5 per cent, to $584 million, with lower levels of variable compensation and a continued focus on cost discipline. Pre-provision profit fell $80 million, or 13 per cent, to $533 million. Loan impairment remained low at $10 million. Other impairment was a net gain $10 million in 2013 due to recoveries of previously written down Private Equity investments. Operating profit fell by $74 million to $533 million. Korea Income fell $154 million, or 23 per cent, to $516 million. On a constant currency basis income fell 25 per cent. Client income fell 9 per cent primarily due to lower income from Lending and Transaction Banking. Transaction Banking was impacted by lower average balances in addition to margin compression as a result of increased competition and a series of interest rate reductions. Lending income fell as we reduced average balances as part of our continuing portfolio optimisation. Corporate Finance income rose driven by strategic finance. Own account income declined due to lower ALM income, which was impacted by the low interest rate environment, and a lower number of Private Equity realisations. Income generated by Korean clients across our network continued to show good momentum, up at a double digit rate, and we opened a further two Korea desks across our footprint. Operating expenses were held flat at $286 million. On a constant currency expenses fell 3 per cent as we continued to tightly manage costs. Pre-provision profit fell by $154 million, or 40 per cent, to $230 million. Loan impairment increased by $30 million to $56 million as higher levels of provisions offset a lower levels of recoveries. Other impairment increased $20 million to $27 million reflecting lower levels of recoveries on previously written off Private Equity investments than in Operating profit was lower by $204 million, or 58 per cent, at $147 million. Other Asia Pacific Income fell $247 million, or 12 per cent, at $1,831 million. Income fell in most of the major markets in this region, reflecting margin compression and challenging market conditions. Income in China fell 13 per cent to $613 million primarily due to margin compression offsetting strong client activity. Client income fell 5 per cent as strong growth in Cash, Trade and FM transaction volumes more than offset by lower margins following interest rate cuts in 2012 and spread compression in FM products. Income in Taiwan fell 13 per cent to $125 million although client income rose 8 per cent. Own account declined, particularly impacted by market movements in the second half of the year. Transaction Banking income was adversely impacted by margin compression. This was offset by a good performance from FM, where increased FX income, driven by RMB products, offset a lower Rates performance. Income in Indonesia fell 24 per cent to $264 million. Client income fell 9 per cent, with Transaction Banking income impacted by margin compression in Trade and Cash and FM income affected by the shift in sentiment on emerging markets. Income in Malaysia fell 19 per cent to $282 million. Client income remained resilient and was flat to 2012 but own account income fell sharply, particularly in ALM. Operating expenses in the region fell $113 million, or 11 per cent, to $938 million. Expenses in 2012 were impacted by a net charge of $50 million as a result of a legacy commercial legal provision, offset by provision recoveries. Excluding this, expenses fell 6 per cent. China operating expenses fell 3 per cent to $364 million as we continue to control costs tightly whilst also investing and developing our franchise footprints. Pre-provision profit in Other APR was lower by 13 per cent at $893 million. Loan impairment increased by $70 million to $105 million. Impairment in China increased to $23 million reflecting some pockets of stress although asset quality remains stable. Impairment in Indonesia increased $46 million in respect of a very small number of exposures. Profit from associates and joint ventures grew $43 million reflecting a strong performance from Bohai Bank in China. Operating profit was 4 per cent lower at $967 million. China contributed $361 million of operating profit, with Indonesia and Malaysia as the other major profit contributors in this region. India Income rose $77 million, or 7 per cent, to $1,224 million. On a constant currency basis, income rose 17 per cent. Despite a deteriorating credit environment and intense pricing pressures, client income increased 2 per cent (up 12 per cent on a constant currency basis) driven by Corporate Finance, FX and Lending. Flow FX continues to grow strongly, leveraging Transaction Banking relationships, and FX Options income also rose with increased levels of client hedging reflecting the volatility in exchange rates seen in the second half of Transaction Banking income was impacted by lower margins although this was partly offset as average balances increased. Own account income rose benefiting from the de-risking of the portfolio. Cross border activity from our Indian clients remained strong, with income booked across our network growing at a double digit rate. Operating expenses were lower by $39 million, or 9 per cent, at $396 million. On a constant currency basis, expenses fell 1 per cent, primarily driven by lower staff costs due to lower levels of variable compensation. Pre-provision profit was down $116 million, or 16 per cent, at $828 million

157 Financial Review continued Loan impairment increased by $19 million to $157 million. The charge reflects a very small number of large exposures together with a higher number of small provisions across the portfolio as economic pressures drove impairment to elevated levels. Other impairment increased to a charge of $101 million from a recovery of $9 million, due to a charge relating to a specific bond exposure and a write down of certain Private Equity investments. Operating profit was down $13 million, or 2 per cent, to $570 million. On a constant currency basis, operating profit rose 6 per cent. MESA Income was lower by $81 million, or 5 per cent, to $1,402 million. Client income fell 4 per cent. Growth in Transaction Banking income, where lower income in the UAE and Pakistan was more than offset by higher income from Bangladesh and a number of smaller markets in the region, was more than offset by lower FM income. Own account income also fell, impacted by the run-off of higher yielding assets and lower levels of volatility. Income in the UAE, which generates almost 50 per cent of the income in this region, was down 7 per cent overall. Client income fell due to lower Transaction Banking income as margin compression more than offset growth in average balances. FX flow income was also impacted by tighter spreads despite an increase in volumes. Own account income also fell as an improved performance in Rates was offset by lower FX income. Income in Bangladesh grew 22 per cent primarily driven by Cash. Income fell in Pakistan, down 19 per cent primarily due to lower levels of ALM income, and Qatar, down 37 per cent as a result of lower Commodities income. Operating expenses in MESA fell $18 million, or 3 per cent, to $590 million, as we managed costs tightly across the region. Pre-provision profit in MESA was down $63 million, or 7 per cent, to $812 million. Loan impairment fell $261 million to $4 million, primarily in the UAE as 2012 was impacted by provisions on a small number of accounts. Operating profit in MESA rose 40 per cent to $808 million. Africa Income rose $105 million, or 9 per cent, to $1,217 million. On a constant currency basis, income was up 16 per cent. This region continues to be diversified across products, client groups and countries and income growth was driven by higher FM income from increased FX and Rates volumes and an increase in Corporate Finance income as we closed a greater number of transactions. This was partly offset by lower income from Transaction Banking which was impacted by lower Cash margins. Nigeria continues to be the largest WB market in the region with income up by 13 per cent, as income from Corporate Finance, Transaction Banking and Lending rose. Income in Ghana rose 23 per cent from an improved FM performance and income in Kenya rose 21 per cent on the back of Transaction Banking and Corporate Finance. This was partly offset by lower income in South Africa, down 30 per cent, and Uganda, down 17 per cent both primarily due to lower Transaction Banking income. Operating expenses were up $56 million, or 12 per cent, to $534 million. On a constant currency basis, expenses were 18 per cent higher, reflecting investments in staff and technology to build capability. Pre-provision profit was up $49 million, or 8 per cent, to $683 million. Loan impairment increased to $248 million, up $230 million from 2012 driven by new provisions on a small number of accounts. Operating profit was $181 million lower at $435 million, down 29 per cent. On a constant currency basis, operating profit fell 25 per cent. Americas, UK & Europe This region acts as a two way bridge, linking the Americas, UK & Europe with our markets in Asia, Africa and the Middle East. Income was down 2 per cent to $1,989 million, although client income remained resilient growing 4 per cent compared to Transaction Banking income increased as average balances grew strongly although margins were compressed reflecting increased levels of competition. Corporate Finance income also grew strongly as we re-financed existing deals at higher rates. FM income, however, fell as good growth in FX and FX options was more than offset by lower income from Rates and money market funds. Own account income fell sharply as market conditions impacted FX and Commodities income. Operating expenses fell by $544 million, or 32 per cent. Excluding the impact of the settlements with the US authorities in 2012, expenses rose 12 per cent, reflecting increased regulatory and compliance costs. Pre-provision profit rose $508 million, or 149 per cent to $850 million. Loan impairment decreased by $15 million to a charge of $7 million whilst other impairment increased by $7 million to a net recovery of $2 million. Operating profit rose $516 million to $846 million. Excluding the impact of the settlements with the US authorities in 2012, operating profit fell 15 per cent

158 Financial Review continued Income by product is set out below: Operating Income by product 2013 vs Better/(worse) $million $million % Lending and Portfolio Management (3) Transaction Banking Trade 1,839 1,917 (4) Cash management and custody 1,624 1,723 (6) Global Markets 1 3,463 3,640 (5) Financial Markets 2 3,638 3,661 (1) Asset and Liability Management (ALM) (10) Corporate Finance 2,512 2, Principal Finance (43) 7,178 7,206 (0) Total operating income 11,456 11,684 (2) Financial Markets operating income by desk 2013 vs Better/(worse) $million $million % Foreign Exchange 1,409 1, Rates (5) Commodities and Equities (3) Capital Markets (6) Credit and Other (16) Total Financial Markets operating income 3,638 3,661 (1) 1 Global Markets comprises the following businesses: Financial Markets (foreign exchange, interest rate and other derivatives, commodities and equities, debt capital markets and syndications); ALM; Corporate Finance (corporate advisory, structured trade finance, structured finance and project and export finance); and Principal Finance (corporate private equity, real estate infrastructure and alternative investments) 2 Excludes $106 million in respect of Own credit adjustment

159 Financial risk management The following parts of the Risk Review form part of these financial statements: Regulatory compliance, review, requests for information and investigations and Risk of fraud and other criminal acts on pages 30 and 31 From the start of the Risk Management section on page 28 to the end of the Pension Risk section on page 120 excluding: 1. Asset backed securities, page Mapping of market risk items to the balance sheet, page Encumbered assets, page 103; and 4. Liquidity Coverage Ratio and Net Stable Funding Ratio, page 108 From the start of the Capital management section on page 121 to the end of Current compliance with Capital Adequacy Regulations on page 121 From the start of the Capital base section on page 123 until the end of Movement in total capital on page 124 Risk overview Standard Chartered has a defined risk appetite, approved by the Board, which is an expression of the amount of risk we are prepared to take and plays a central role in the development of our strategic plans and policies. Our overall risk appetite has not changed. We regularly assess our aggregate risk profile, conduct stress tests and monitor concentrations to ensure that we are operating within our approved risk appetite. Further details on our approach to risk appetite and stress testing are set out on page 34. We review and adjust our underwriting standards and limits in response to observed and anticipated changes in the external environment and the evolving expectations of our stakeholders. During the course of 2013, we maintained a cautious stance overall while continuing to support our core clients. Credit risk management is covered in more detail on page 35. Our balance sheet and liquidity have remained strong. Over half of total assets mature within one year and of these approximately 70 per cent mature within three months. The balance sheet is highly diversified across a wide range of products, industries, geographies and customer segments, which serves to mitigate risk: Customer loans and advances are 44 per cent of total assets The manufacturing sector in Wholesale Banking (WB), which is 25 per cent of lending, is diversified by industry and geography The largest concentration to any globally correlated industry is to energy at 9 per cent of total WB assets. The exposure is well spread across eight subsectors and over 350 client groups and, reflecting the trade bias in the portfolio, 64 per cent of exposures mature within one year Our top 20 corporate exposures are stable as a proportion of Group capital resources and highly diversified, with each, on average, spread across seven markets and five industries Our cross-border asset exposure is also diversified and reflects our strategic focus on our core markets and customer segments. Further details are set out on page per cent of customer loans and advances are in Consumer Banking (CB); 73 per cent of these are secured and the overall loan to value ratio on our mortgage portfolio is less than 48 per cent The unsecured CB portfolio is spread across multiple products in over 30 markets We have low exposure to asset classes and segments outside our core markets and target customer base. We have no direct sovereign exposure (as defined by the European Banking Authority (EBA)) to Greece, Ireland, Italy, Portugal or Spain (GIIPS). Our exposure in these countries is primarily in trade finance and financial markets. Further details of our eurozone exposures are given on page 88. Our exposure to countries impacted by the political developments in the Middle East and North Africa are also low. Exposures in Syria, Lebanon, Egypt, Libya, Algeria and Tunisia represent less than 0.5 per cent of our total assets. Our exposures to commercial real estate and leveraged loans account for 2 per cent and 1 per cent of our total assets respectively. The notional value of the Asset Backed Securities (ABS) portfolio, which accounts for 1 per cent of our total assets increased by $2.0 billion in 2013 due to investments in high quality, senior ABS and Residential Mortgage Backed Securities (RMBS) assets in the Group s portfolio of marketable securities. Further details are given on page 87. We have closely managed our exposures in markets and sectors which have faced downturns during 2013, increasing collateral cover and selectively reducing exposures and limits. Market risk is tightly monitored using Value at Risk (VaR) methodologies complemented by sensitivity measures, gross nominal limits and loss triggers at a detailed portfolio level. This is supplemented with extensive stress testing which takes account of more extreme price movements. Our overall trading book risk exposure has not changed significantly during the course of Further details on market risk are given on page 94. We maintained a strong advances-to-deposits ratio in Liquidity will continue to be deployed to support growth opportunities in our chosen markets. We manage liquidity in each of our branches and operating subsidiaries in each country, ensuring that we can meet all short-term funding and collateral requirements and that our balance sheet remains structurally sound. Our customer

160 Financial risk management continued deposit base is diversified by type and maturity and we are a net provider of liquidity to the interbank money markets. We have a substantial portfolio of marketable securities that can be realised in the event of liquidity stress. Further details on liquidity risk are provided on pages 101 to 117. We continue to engage actively with our regulators, including the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA), the Bank of England (BoE) and our host regulators in each of the markets in which we operate. We have a well established risk governance structure, which is set out on page 33, and an experienced senior team. Members of our most senior executive body (the Court) sit on our principal risk executive committees, which ensure that risk oversight is a strong focus for all our executive directors, while common membership between these committees helps us address the interrelationships between risk types. Board committees provide additional risk management oversight and challenge. We continue to build on the Group s culture of risk management discipline. During 2013 we refreshed and re-communicated the Group s Code of Conduct, reinforcing our values and our brand promise. We recognise that failures of regulatory compliance have damaged the Group s reputation, and continue to pay close attention to this. The management of operational risk, more broadly, continues to be enhanced as we incrementally roll out our new approach across all areas of the Group. We are introducing increased rigour in the process for anticipating a wide variety of operational risks and in our assessments of risks and control effectiveness. Operational risk and reputational risk are covered in more detail on pages 118 and 120. Impairment review The total impairment charge (excluding goodwill impairment) for 2013 has increased by $354 million compared to The increase has primarily been CB, partly offset by lower other impairment charges. In CB, total loan impairment provisions have increased year on year, primarily reflecting the growth and seasoning of loans booked between 2010 and 2012, the ongoing impact of Korea Personal Debt Rehabilitation Scheme (PDRS) filings and effects of reduced loan sales compared to previous years. The increase is otherwise in line with our portfolio growth and growth in unsecured products in selected markets in prior years. Portfolio impairment provisions (PIPs) also reduced as a result of reclassification of consumer finance businesses in Korea as held for sale. We remain disciplined in our approach to risk management and proactive in our collection efforts to minimise account delinquencies. In WB, total loan impairment provisions have increased by $61 million compared to This was concentrated in a few names in India and Africa and was partially offset by a release of an overlay PIP in the Middle East and Other South Asia (MESA) as economic conditions improved. The credit quality of the portfolio quality remains high in spite of the volatility in commodity prices and currencies. Further details of credit risk in respect of the Group s loans portfolio is set out on page 35 to 39 Other impairment, excluding goodwill impairment, is lower compared to prior periods, as 2012 was impacted by provision against certain investments in associates. Further details are set out in note 11 on page 161. Principal uncertainties We are in the business of taking selected risks to generate shareholder value, and we seek to contain and mitigate these risks to ensure they remain within our risk appetite and are adequately compensated. The key uncertainties we face in the coming year are set out below. This should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties that we may experience. Deteriorating macroeconomic conditions in footprint countries Macroeconomic conditions have an impact on personal expenditure and consumption, demand for business products and services, the debt service burden of consumers and businesses, the general availability of credit for retail and corporate borrowers and the availability of capital and liquidity funding for our business. All these factors may impact our performance. The world economy is coming out of a difficult period and uncertainty remains. The unwinding of the US Federal Reserve s (Fed) quantitative easing programme could lead to higher interest rates, volatility in financial markets and capital flight from emerging markets which may threaten the growth trajectory of some vulnerable economies. A slowdown in China s growth may depress prices and trade in a number of commodity sectors such as energy, metals and mining sectors, and a prolonged slowdown could have wider economic repercussions. The sovereign crisis in the eurozone is not fully resolved and, although acute risks have been addressed by ongoing policy initiatives, there is still a need for substantial new structural reform (see additional information on the risk of redenomination on page 88). Our exposure to eurozone sovereign debt is very low. However, we remain alert to the risk of secondary impacts from events in the West on financial institutions, other counterparties and global economic growth. Inflation and property prices appear to be under control in most of the countries in which we operate. Changes in monetary policy could lead to significant increases in interest rates from their currently low historical levels, with resulting impacts on the wider economy and on property values. We balance risk and return, taking account of changing conditions through the economic cycle, and monitor economic trends in our markets very closely. We conduct stress tests to assess the effects of extreme but plausible trading conditions on our portfolio and also continuously review the suitability of our risk policies and controls. We manage credit exposures following the principle of diversification across products, geographies, client and customer segments. This provides for strong resilience against economic shocks in one or more of our portfolios

161 Financial risk management continued Regulatory changes Our business as an international bank will continue to be subject to an evolving and complex regulatory framework comprising legislation, regulation and codes of practice, in each of the countries in which we operate. A key uncertainty relates to the way in which governments and regulators adjust laws, regulations and economic policies in response to macroeconomic and other systemic conditions. The nature and impact of such future changes are not always predictable and could run counter to our strategic interests. Some are anticipated to have a significant impact, such as changes to capital and liquidity regimes, changes to the calculation of risk-weighted assets (RWA), derivatives reform, remuneration reforms, recovery and resolution plans, banking structural reforms in a number of markets, (including proposals which could result in (i) deposit-taking entities being ring-fenced from WB activities and (ii) local branches of international banking groups being subsidiarised), the UK bank levy and the US Foreign Account Tax Compliance Act. In relation to the banking structural reforms, the European Commission has published a legislative proposal for a regulation introducing structural reforms to the EU banking sector, including a prohibition on proprietary trading and separation powers for supervisors relating to banks' other trading activities. Uncertainty remains regarding details of the application of the European Union s Capital Requirements Directive and Regulation IV (CRD IV), the proposed Bank Recovery and Resolution Directive (BRRD) and Over the Counter (OTC) derivative reforms across our markets which could potentially have a material impact on the Group and its business model. Proposed changes could also adversely affect economic growth, the volatility and liquidity of the financial markets and, consequently, the way we conduct business, structure our global operating model and manage capital and liquidity. These effects may directly or indirectly impact our financial performance. Despite these concerns, we remain a highly liquid and well capitalised bank under current and currently published future regimes. It is in the wider interest to have a well run financial system, and we are supportive of a tighter regulatory regime that enhances the resilience of the international financial system. The Group will continue to participate in the regulatory debate through responses to consultations and working towards an improved and workable regulatory architecture. We are also encouraging our international regulators to work together to develop co-ordinated approaches to regulating and resolving cross border banking groups. We support changes to laws, regulations and codes of practice that will improve the overall stability of, and the conduct within, the financial system because this provides benefits to our clients and shareholders and the broader geographies and markets in which we operate. However, we also have concerns that certain proposals may not achieve this desired objective and may have unintended consequences, either individually or in terms of aggregate impact. Regulatory compliance, reviews, requests for information and investigations Since the global financial crisis, the banking industry has been subject to increased regulatory scrutiny. There has been an unprecedented volume of regulatory changes and requirements, as well as a more intensive approach to supervision and oversight, resulting in an increasing number of regulatory reviews, requests for information and investigations, often with enforcement consequences, involving banks. While the Group seeks to comply with the letter and spirit of all applicable laws and regulations at all times, it may be subject to regulatory actions and investigations across our markets, the outcomes of which are generally difficult to predict and can be material to the Group. Where laws and regulations across the geographies in which the Group operates contradict each other or create conflicting obligations, the Group aspires to meet both local requirements and appropriate global standards. From time to time the Group is the subject of various regulatory reviews, requests for information (including subpoenas and requests for documents) and investigations by various governmental and regulatory bodies arising from the Group s business operations. In 2012 the Group reached settlements with the US authorities regarding US sanctions compliance in the period 2001 to 2007, involving a Consent Order by the New York Department of Financial Services (NYDFS), a Cease and Desist Order by the Federal Reserve Bank of New York (FRBNY), Deferred Prosecution Agreements with each of the Department of Justice and with the District Attorney of New York (each a DPA ) and a Settlement Agreement with the Office of Foreign Assets Control. In addition to the civil penalties totalling $667million, the terms of these settlements (together the Settlements ) include a number of conditions and ongoing obligations with regard to improving sanctions and Anti-Money Laundering (AML) and Banking Secrecy Act (BSA) controls such as remediation programmes, reporting requirements, compliance reviews and programmes, banking transparency requirements, training measures, audit programmes, disclosure obligations and the appointment of an independent monitor. These obligations are managed under a programme of work referred to as the US Supervisory Remediation Program (SRP). The SRP comprises work streams designed to ensure compliance with the remediation requirements contained in all of the Settlements. Provided the Group fulfils all the requirements imposed by the DPAs, the applicable charges against the Group will be dismissed at the end of the two year term of those agreements. The Group has established a Financial Crime Risk Mitigation Programme (FCRMP), which is a comprehensive, multi-year, programme designed to review many aspects of the Group s existing approach to anti-money laundering and sanctions compliance and to enhance them as appropriate. One key component of the FCRMP is to oversee and manage the SRP. As part of the FCRMP the Group or its advisors may identify new issues, potential breaches or matters requiring further review or further process improvements that could impact the scope or duration of the FCRMP. The Group is engaged with all relevant authorities to implement these programmes, meet the obligations under the Settlements and respond to further requests for information and inquiries related to its historic, current and future compliance with the sanctions regimes. The Group recognises that its compliance with historic, current and future sanctions, as well as AML and BSA requirements, and customer due diligence practices, not just in the US but throughout its footprint, is and will remain a focus of the relevant authorities

162 Financial risk management continued As part of their remit to oversee market conduct, regulators and other agencies in certain markets are conducting investigations or requesting reviews into a number of areas of market conduct including sales and trading, involving a range of financial products, and submissions made to set various market interest rates and other financial benchmarks, such as foreign exchange. At relevant times, certain of the Group s branches and/or subsidiaries were (and are) participants in some of those markets, in some cases submitting data to bodies that set such rates and other financial benchmarks. The Group is contributing to industry proposals to strengthen financial benchmark processes in certain markets and continues to review its practices and processes in the light of the investigations, reviews and the industry proposals. The Group is co-operating with all such ongoing reviews, requests for information and investigations. While the Group seeks to comply with the letter and spirit of all applicable laws and regulations, the outcome of these reviews, requests for information and investigations is uncertain and it may not be possible to predict the extent of any liabilities or other consequences that may arise. For further details on legal and regulatory matters refer to note 44 on page 239. Financial markets dislocation There is a risk that a sudden financial market dislocation, perhaps as a result of a tightening of monetary policy in the major economies or a deterioration of the sovereign debt crisis in the eurozone, could significantly increase general financial market volatility which could affect our performance or the availability of capital or liquidity. In addition, reduction of monetary intervention by the Federal Reserve, or other central banks, could disrupt external funding for some economies leading to lower growth and financial markets volatility. These factors may have an impact on the mark-to-market valuations of assets in our available-for-sale and trading portfolios. The potential losses incurred by certain clients holding derivative contracts during periods of financial market volatility could also lead to an increase in disputes and corporate defaults. At the same time, financial market instability could cause some financial institution counterparties to experience tighter liquidity conditions or even fail. There is no certainty that Government action to reduce the systemic risk will be successful and it may have unintended consequences We stress test our market risk exposures to highlight the potential impact of extreme market events on those exposures and to confirm that they are within authorised stress triggers. Stress scenarios are regularly updated to reflect changes in risk profile and economic events. Where necessary, overall reductions in market risk exposure are enforced. We closely monitor the performance of our financial institution counterparties and adjust our exposure to these counterparties as necessary. We maintain robust processes to assess the appropriateness and suitability of products and services we provide to clients and customers to mitigate the risk of disputes. Geo-political events We operate in a large number of markets around the world, and our performance is in part reliant on the openness of cross-border trade and capital flows. We face a risk that geo-political tensions or conflicts in our footprint could impact trade flows, our customers ability to pay, and our ability to manage capital or operations across borders. We actively monitor the political situation in all our principal markets, such as the development of events in the Middle East and territorial disputes in North East Asia. We conduct stress tests of the impact of extreme but plausible geo-political events on our performance and the potential for such events to jeopardise our ability to operate within our stated risk appetite. Further details on stress testing are given on page 34. Risk of fraud and other criminal acts The banking industry has long been a target for third parties seeking to defraud, to disrupt legitimate economic activity, or to facilitate other illegal activities. The risk posed by such criminal activity is growing as criminals become more sophisticated and as they take advantage of the increasing use of technology and the internet. The incident of cyber crime is rising, becoming more globally co-ordinated, and is a challenge for all organisations. We seek to be vigilant to the risk of internal and external crime in our management of people, processes, systems and in our dealings with customers and other stakeholders. We have a broad range of measures in place to monitor and mitigate this risk. Controls are embedded in our policies and procedures across a wide range of the Group s activities, such as origination, recruitment, physical and information security. We have a set of techniques, tools and activities to detect and respond to cyber crime, in its many forms. We actively collaborate with our peers, regulators and other expert bodies as part of our response to risk. The Group s controls to address money laundering risks are under review as part of the Group s Financial Crime Risk Mitigation Programme, referred to in the section headed Regulatory compliance, reviews, requests for information and investigations on the previous page. Fraud and criminal activity may also give rise to litigation impacting the Group. In December 2008, Bernard Madoff confessed to running a Ponzi scheme through Bernard L. Madoff Investment Securities, LLC ( BMIS ). American Express Bank ( AEB ), acquired by the Group in February 2008, had provided clients with access to funds that invested in BMIS. BMIS and the funds are in liquidation. Certain clients have brought actions against the Group in various jurisdictions seeking to recover losses based principally on the assertion that inadequate due diligence was undertaken on the funds. In addition, the BMIS bankruptcy trustee and the funds liquidator have commenced proceedings against the Group, seeking to recover sums paid to clients when they redeemed their investments prior to BMIS bankruptcy. There is a range of possible outcomes in the litigation described above, with the result that it is not possible for the Group to estimate reliably the liability that might arise. However, the Group considers that it has good defences to the asserted claims and continues to defend them vigorously

163 Financial risk management continued For further details on legal and regulatory matters refer to note 44 on page 239. Exchange rate movements Changes in exchange rates affect, among other things, the value of our assets and liabilities denominated in foreign currencies, as well as the earnings reported by our non-us dollar denominated branches and subsidiaries. Sharp currency movements can also impact trade flows and the wealth of clients both of which could have an impact on our performance. We monitor exchange rate movements closely and adjust our exposures accordingly. Under certain circumstances, we may take the decision to hedge our foreign exchange exposures in order to protect our capital ratios from the effects of changes in exchange rates. The effect of exchange rate movements on the capital adequacy ratio is mitigated to the extent there are proportionate movements in RWA. The table below sets out the year end and average currency exchange rates per US dollar for India, Korea, Indonesia and Taiwan for the years ended 31 December 2013 and 31 December These are the markets for which currency exchange rate movements have had the greatest translation impact on the Group s results in Indian rupee Average Period end Korean won Average 1, , Period end 1, , Indonesian rupiah Average 10, , Period end 12, , Taiwan dollar Average Period end As a result of our normal business operations, Standard Chartered is exposed to a broader range of risks than those principal uncertainties mentioned above and our approach to managing risk is detailed on the following pages. Risk management The management of risk lies at the heart of Standard Chartered s business. One of the main risks we incur arises from extending credit to customers through our trading and lending operations. Beyond credit risk, we are also exposed to a range of other risk types such as country cross-border, market, liquidity, operational, pension, reputational and other risks that are inherent to our strategy, product range and geographical coverage. Risk management framework Effective risk management is fundamental to being able to generate profits consistently and sustainably and is thus a central part of the financial and operational management of the Group. Through our risk management framework we manage enterprise-wide risks, with the objective of maximising risk-adjusted returns while remaining within our risk appetite. As part of this framework, we use a set of principles that describe the risk management culture we wish to sustain: Balancing risk and return: risk is taken in support of the requirements of our stakeholders, in line with our strategy and within our risk appetite Responsibility: it is the responsibility of all employees to ensure that risk-taking is disciplined and focused. We take account of our social responsibilities and our commitments to customers in taking risk to produce a return Accountability: risk is taken only within agreed authorities and where there is appropriate infrastructure and resource. All risktaking must be transparent, controlled and reported Anticipation: we seek to anticipate future risks and ensure awareness of all known risks Competitive advantage: we seek to achieve competitive advantage through efficient and effective risk management and control

164 Financial risk management continued Risk governance Ultimate responsibility for setting our risk appetite and for the effective management of risk rests with the Board. Acting within an authority delegated by the Board, the Board Risk Committee (BRC), whose membership is comprised exclusively of non-executive directors of the Group, has responsibility for oversight and review of prudential risks including but not limited to credit, market, capital, liquidity and operational. It reviews the Group s overall risk appetite and makes recommendations thereon to the Board. Its responsibilities also include reviewing the appropriateness and effectiveness of the Group s risk management systems and controls, considering the implications of material regulatory change proposals, ensuring effective due diligence on material acquisitions and disposals, and monitoring the activities of the Group Risk Committee (GRC) and Group Asset and Liability Committee (GALCO). The BRC receives regular reports on risk management, including our portfolio trends, policies and standards, stress testing, liquidity and capital adequacy, and is authorised to investigate or seek any information relating to an activity within its terms of reference. The BRC also conducts deep dive reviews on a rolling basis of different sections of the consolidated Group risk information report. The Brand and Values Committee (BVC) oversees the brand, culture, values and good reputation of the Group. It seeks to ensure that the management of reputational risk is consistent with the risk appetite approved by the Board and with the creation of long term shareholder value. The role of the Audit Committee is to have oversight and review of financial, audit and internal control issues. Further details on the role of the Board and its committees in matters of risk governance are covered in the Corporate Governance section in the Group s Annual Report. Overall accountability for risk management is held by the Standard Chartered Bank Court (the Court) which comprises the Group executive directors and other senior executives of Standard Chartered Bank. The Court is the highest executive body of the Group and its terms of reference are approved by the Board of Standard Chartered PLC. The Court delegates authority for the management of risk to the GRC and the GALCO. The GRC is responsible for the management of all risks other than those delegated by the Court to the GALCO. The GRC is responsible for the establishment of, and compliance with, policies relating to credit risk, country cross-border risk, market risk, operational risk, pension risk and reputational risk. The GRC also defines our overall risk management framework. The GALCO is responsible for the management of capital and the establishment of, and compliance with, policies relating to balance sheet management, including management of our liquidity, capital adequacy and structural foreign exchange and interest rate risk. Members of the GRC and the GALCO are both drawn from the Court. The GRC is chaired by the Group Chief Risk Officer (GCRO). The GALCO is chaired by the Group Finance Director. Risk limits and risk exposure approval authority frameworks are set by the GRC in respect of credit risk, country cross-border risk, market risk and operational risk. The GALCO sets the approval authority framework in respect of liquidity risk. Risk approval authorities may be exercised by risk committees or authorised individuals. The committee governance structure ensures that risk-taking authority and risk management policies are cascaded down from the Board through to the appropriate functional, divisional and country-level committees. Information regarding material risk issues and compliance with policies and standards is communicated to the country, business, functional and Group-level committees. Roles and responsibilities for risk management are defined under a Three Lines of Defence model. Each line of defence describes a specific set of responsibilities for risk management and control. First line of defence: all employees are required to ensure the effective management of risks within the scope of their direct organisational responsibilities. Business, function and geographic heads are accountable for risk management in their respective businesses and functions, and for countries where they have governance responsibilities. Second line of defence: this comprises the risk control owners, supported by their respective control functions. Risk control owners are responsible for ensuring that the risks within the scope of their responsibilities remain within appetite. The scope of a risk control owner s responsibilities is defined by a given risk type and the risk management processes that relate to that risk type. These responsibilities cut across the Group and are not constrained by functional, business and geographic boundaries. The major risk types are described individually in the following sections. Third line of defence: The independent assurance provided by the Group Internal Audit function (GIA). Its role is defined and overseen by the Audit Committee The findings from the GIA s audits are reported to all relevant management and governance bodies accountable line managers, relevant oversight function or committee and committees of the Board. The GIA provides independent assurance of the effectiveness of management s control of its own business activities (the first line) and of the processes maintained by the Risk Control Functions (the second line). As a result, the GIA provides assurance that the overall system of control effectiveness is working as required within the Risk Management Framework

165 Financial risk management continued The Risk function The GCRO directly manages a Risk function that is separate from the origination, trading and sales functions of the businesses. The GCRO also chairs the GRC and is a member of the Court. The role of the Risk function is: To maintain the Risk Management Framework, ensuring it remains appropriate to the Group s activities, is effectively communicated and implemented across the Group and for administering related governance and reporting processes To uphold the overall integrity of the Group s risk/return decisions, and in particular for ensuring that risks are properly assessed, that risk/return decisions are made transparently on the basis of this proper assessment, and are controlled in accordance with the Group s standards and risk appetite To exercise direct Risk Control Ownership for Credit, Market, Country Cross-Border, Short-term Liquidity and Operational risk types. The independence of the Risk function is to ensure that the necessary balance in risk/return decisions is not compromised by shortterm pressures to generate revenues. This is particularly important given that revenues are recognised from the point of sale while losses arising from risk positions typically manifest themselves over time In addition, the Risk function is a centre of excellence that provides specialist capabilities of relevance to risk management processes in the wider organisation. Risk appetite We manage our risks to build a sustainable franchise in the interests of all our stakeholders. Risk appetite is an expression of the amount of risk we are willing to take in pursuit of our strategic objectives, reflecting our capacity to sustain losses and continue to meet our obligations arising from a range of different stress trading conditions. We define our risk appetite in terms of both volatility of earnings and the maintenance of adequate regulatory capital under stress scenarios. We also define a risk appetite with respect to liquidity risk, operational risk and reputational risk. Our quantitative risk profile is assessed through a bottom-up analytical approach covering all of our major businesses, countries and products. It is also assessed against a range of exposure concentration thresholds. The Group s risk appetite statement is approved by the Board and forms the basis for establishing the risk parameters within which the businesses must operate, including policies, concentration limits and business mix. The Group will not compromise adherence to its risk appetite in order to pursue revenue growth or higher returns. The GRC and GALCO are responsible for ensuring that our risk profile is managed in compliance with the risk appetite set by the Board. The BRC advises the Board on the risk appetite statement and oversees that the Group remains within it. Stress testing Stress testing and scenario analysis are used to assess the financial and management capability of Standard Chartered to continue operating effectively under extreme but plausible trading conditions. Such conditions may arise from economic, regulatory, legal, political, environmental and social factors. Our stress testing framework is designed to: Contribute to the setting and monitoring of risk appetite Identify key risks to our strategy, financial position, and reputation Support the development of mitigating actions and contingency plans Ensure effective governance, processes and systems are in place to co-ordinate and integrate stress testing Adhere to regulatory requirements. Our stress testing activity focuses on the potential impact of macroeconomic, geo-political and physical events on relevant geographies, customer segments and asset classes. Stress tests are also performed at country and business level. A Stress Testing Committee, led by the Risk function with members drawn from the business, Finance, Global Research and Group Treasury, aims to ensure that the implications of specific stress scenarios are fully understood allowing informed mitigation actions and construction of contingency plans. The Stress Testing Committee generates and considers pertinent and plausible scenarios that have the potential to adversely affect our business and considers impact across different risk types and countries. Stress testing is carried out at multiple levels within the Group to analyse the potential impact of possible stress scenarios at country and business line level and on the Group. During the year, Group level stress testing covered a considerable range of macroeconomic scenarios. These included the effects of a major downturn in world trade, severe economic stress in emerging markets, a slump in emerging markets, exports sharp appreciation and depreciation in currencies, and the tapering of quantitative easing. Stress testing at business level covered a range of scenarios including the impact of foreign exchange depreciation or appreciation, sustained falls in base metals and energy prices, significant changes in interest rates and drops in counterparty credit quality. At country level, a number of portfolio reviews were also undertaken, covering the effects of stress on a range of industry sectors, including the shipbuilding, banking, real estate, telecoms, mining and renewable energy sectors. Market risk and liquidity stress tests are also carried out regularly as described in the section on market risk on page 94 and liquidity risk on page

166 Financial risk management continued Credit risk management Credit risk is the potential for loss due to the failure of a counterparty to meet its obligations to pay the Group in accordance with agreed terms. Credit exposures arise from both the banking and trading books. Credit risk is managed through a framework that sets out policies and procedures covering the measurement and management of credit risk. There is a clear segregation of duties between transaction originators in the businesses and approvers in the Risk function. All credit exposure limits are approved within a defined credit approval authority framework. The Group manages its credit exposures following the principle of diversification across products, geographies, client and customer segments. Credit policies Group-wide credit policies and standards are considered and approved by the GRC, which also oversees the delegation of credit approval and loan impairment provisioning authorities. Policies and procedures specific to each business are established by authorised risk committees. These are consistent with our Group-wide credit policies, but are more detailed and adapted to reflect the different risk environments and portfolio characteristics. Credit rating and measurement Risk measurement plays a central role, along with judgment and experience, in informing risk taking and portfolio management decisions. It is a primary area for sustained investment and senior management attention. Since 1 January 2008, Standard Chartered has used the advanced Internal Ratings Based (IRB) approach under the Basel II regulatory framework to calculate credit risk capital requirements. For IRB portfolios, alphanumeric credit risk grade (CG) system is used across our businesses. The grading is based on our internal estimate of probability of default over a one year horizon, with customers or portfolios assessed against a range of quantitative and qualitative factors. The numeric grades run from 1 to 14 and some of the grades are further sub-classified. Lower credit grades are indicative of a lower likelihood of default. Credit grades 1 to 12 are assigned to performing customers or accounts, while credit grades 13 and 14 are assigned to non-performing or defaulted customers. An analysis by credit grade of those loans that are neither past due nor impaired is set out on page 45. Our credit grades are not intended to replicate external credit grades (where these are available), and ratings assigned by external ratings agencies are not used in determining our internal credit grades. Nonetheless, as the factors used to grade a borrower may be similar, a borrower rated poorly by an external rating agency is typically assigned a worse internal credit grade. Advanced IRB models cover a substantial majority of our exposures and are used extensively in assessing risks at a customer and portfolio level, setting strategy and optimising our risk-return decisions. IRB risk measurement models are approved by the responsible risk committee, on the recommendation of the Group Model Assessment Committee (MAC). The MAC supports risk committees in ensuring risk identification and measurement capabilities are objective and consistent, so that risk control and risk origination decisions are properly informed. Prior to review by the MAC, all IRB models are validated in detail by a model validation team, which is separate from the teams that develop and maintain the models. Models undergo annual periodic review. Reviews are also triggered if the performance of a model deteriorates materially against predetermined thresholds during the ongoing model performance monitoring process. Credit approval Major credit exposures to individual counterparties, groups of connected counterparties and portfolios of retail exposures are reviewed and approved by the Group Credit Committee (GCC). The GCC derives its authority from the GRC. All other credit approval authorities are delegated by the GRC to individuals based both on their judgment and experience and a risk-adjusted scale that takes account of the estimated maximum potential loss from a given customer or portfolio. Credit origination and approval roles are segregated in all but a very few authorised cases. In those very few exceptions where they are not, originators can only approve limited exposures within defined risk parameters. An analysis of the loan portfolio by product and counterparty is set out on page 57 for CB and page 68 for WB. Credit concentration risk Credit concentration risk may arise from a single large exposure or from multiple exposures that are closely correlated. This is managed within concentration caps set by counterparty or groups of connected counterparties, and having regard for correlation, by country, industry and product, as applicable. Additional concentration thresholds are set and monitored, where appropriate, by tenor profile, collateralisation levels and credit risk profile. Credit concentrations are monitored by the responsible risk committees in each of the businesses and concentration limits that are material to the Group are reviewed and approved at least annually by the GCC

167 Financial risk management continued Credit monitoring We regularly monitor credit exposures, portfolio performance, and external trends that may impact risk management outcomes. Internal risk management reports are presented to risk committees, containing information on key environmental, political and economic trends across major portfolios and countries; portfolio delinquency and loan impairment performance; and IRB portfolio metrics including credit grade migration. Credit governance committees meet regularly to assess the impact of external events and trends on the Group s credit risk portfolios and to define and implement our response in terms of appropriate changes to portfolio shape, portfolio and underwriting standards, risk policy and procedures. Clients or portfolios are placed on early alert when they display signs of actual or potential weakness. For example, where there is a decline in the client s position within the industry, financial deterioration, a breach of covenants, non-performance of an obligation within the stipulated period, or there are concerns relating to ownership or management. Such accounts and portfolios are subjected to a dedicated process overseen by Early Alert Committees in countries. Client account plans and credit grades are re-evaluated. In addition, remedial actions are agreed and monitored. Remedial actions include, but are not limited to, exposure reduction, security enhancement, exiting the account or immediate movement of the account into the control of Group Special Assets Management (GSAM), our specialist recovery unit. For retail exposures, portfolio delinquency trends are monitored continuously at a detailed level. Individual customer behaviour is also tracked and is considered for lending decisions. Accounts that are past due are subject to a collections process, managed independently by the Risk function. Charged-off accounts are managed by specialist recovery teams. In some countries, aspects of collections and recovery functions are outsourced. The small and medium-sized enterprise (SME) business is managed in two distinct customer sub-segments: small businesses and medium enterprises, differentiated by the annual turnover of the counterparty. The credit processes are further refined based on exposure at risk. Larger exposures are managed through the Discretionary Lending approach, in line with corporate credit procedures, and smaller exposures are managed through Programmed Lending, in line with retail credit procedures. Discretionary Lending and Private Banking past due accounts are managed by GSAM. Credit risk mitigation Potential credit losses from any given account, customer or portfolio are mitigated using a range of tools such as collateral, netting agreements, credit insurance, credit derivatives and guarantees. The reliance that can be placed on these mitigants is carefully assessed in light of issues such as legal certainty and enforceability, market valuation correlation and counterparty risk of the guarantor. Where appropriate, credit derivatives are used to reduce credit risks in the portfolio. Due to their potential impact on income volatility, such derivatives are used in a controlled manner with reference to their expected volatility. Collateral is held to mitigate credit risk exposures and risk mitigation policies determine the eligibility of collateral types. For WB, these policies set out the clear criteria that must be satisfied if the mitigation is to be considered effective: Excessive exposure to any particular risk mitigants or counterparties should be avoided. Collateral concentration mitigation standards are maintained at both the portfolio and counterparty level; Risk mitigants should not be correlated with the underlying assets such that default would coincide with a lowering of the forced sale value of the collateral; Where there is a currency mismatch, haircuts should be applied to protect against currency fluctuations; Legal opinions and documentation must be in place; Ongoing review and controls exist where there is a maturity mismatch between the collateral and exposure. For all credit risk mitigants that meet the policy criteria, a clear set of procedures are applied to ensure that the value of the underlying collateral is appropriately recorded and updated regularly. Collateral types that are eligible for risk mitigation include: cash; residential, commercial and industrial property; fixed assets such as motor vehicles, aircraft, plant and machinery; marketable securities; commodities; bank guarantees; and letters of credit. Standard Chartered also enters into collateralised reverse repurchase agreements. All eligible collateral accepted by SME Banking and Private Banking is covered by a product proposal approved by senior credit officers with the relevant delegated authority. New collateral types have to be vetted through a stringent New Business Approval process and approved by the CB Risk Committee. In order to be recognised as security and for the loan to be classified as secured, all items pledged must be valued and an active secondary resale market must exist for the collateral. Documentation must be held to enable CB to realise the asset without the cooperation of the asset owner in the event that this is necessary. For certain types of lending typically mortgages, asset financing the right to take charge over physical assets is significant in terms of determining appropriate pricing and recoverability in the event of default. The requirement for collateral is not, however, a substitute for the ability to pay, which is the primary consideration for any lending decisions. Regular valuation of collateral is required in accordance with the Group s risk mitigation policy, which prescribes both the process of valuation and the frequency of valuation for different collateral types. The valuation frequency is driven by the level of price volatility of each type of collateral and the nature of the underlying product or risk exposure. Stress tests are performed on changes in collateral values for key portfolios to assist senior management in managing the risks in those portfolios. Physical collateral is required to be insured at all times and against all risks, with the Group as the loss payee under the insurance policy. Detailed procedures over collateral management must be in place for each business at the country level

168 Financial risk management continued Where appropriate, collateral values are adjusted to reflect current market conditions, the probability of recovery and the period of time to realise the collateral in the event of possession. Where guarantees or credit derivatives are used as credit risk mitigation the creditworthiness of the guarantor is assessed and established using the credit approval process in addition to that of the obligor or main counterparty. The main types of guarantors include bank guarantees, insurance companies, parent companies, shareholders and export credit agencies. The Group uses bilateral and multilateral netting to reduce presettlement and settlement counterparty risk. Pre-settlement risk exposures are normally netted using bilateral netting documentation in legally approved jurisdictions. Settlement exposures are generally netted using Delivery versus Payments or Payment versus Payments systems. Traded products Credit risk from traded products is managed within the overall credit risk appetite for corporates and financial institutions. The credit risk exposure from traded products is derived from the positive mark-to-market value of the underlying instruments, and an additional component to cater for potential market movements. For derivative contracts, we limit our exposure to credit losses in the event of default by entering into master netting agreements with certain counterparties. As required by International Accounting Standards (IAS) 32, exposures are only presented net in the financial statement if there is a legal right to offset and there is an intent to settle on a net basis or realise the assets and liabilities simultaneously. As master netting agreements are generally enforced only in the event of default, they cannot be netted on the balance sheet. In addition, we enter into Credit Support Annexes (CSAs) with counterparties where collateral is deemed a necessary or desirable mitigant to the exposure. Further details on CSAs are set out on page 39. Securities The portfolio limits and parameters for the underwriting and purchase of all pre-defined securities assets to be held for sale are approved by the Underwriting Committee. The Underwriting Committee is established under the authority of the GRC. The business operates within set limits, which include country, single issuer, holding period and credit grade limits. Day to day credit risk management activities for traded securities are carried out by a specialist team within the Risk function whose activities include oversight and approval within the levels delegated by the Underwriting Committee. Issuer credit risk, including settlement and pre-settlement risk, and price risk are controlled by the Risk function. The Underwriting Committee approves individual proposals to underwrite new security issues for our clients. Where an underwritten security is held for a period longer than the target sell-down period, the final decision on whether to sell the position rests with the Risk function. Restatement of prior year The tables on pages 240 to 244 and related analysis reflect the restatement of balances at 31 December 2012 for the impact of equity accounting Permata, the Group s joint venture business in Indonesia (within the Other Asia Pacific geographic region) rather than the previous treatment of proportionate consolidation. Credit portfolio Maximum exposure to credit risk The table overleaf presents the Group s maximum exposure to credit risk for its on-balance sheet and off-balance sheet financial instruments at 31 December 2013, before and after taking into account any collateral held or other credit risk mitigation. For onbalance sheet instruments, the maximum exposure to credit risk is the carrying amount reported on the balance sheet. For offbalance sheet instruments, the maximum exposure to credit risk generally represents the contractual notional amounts. The Group s exposure to credit risk is spread across our markets and is affected by the general economic conditions in the geographies in which it operates. The Group sets limits on the exposure to any counterparty, and credit risk is spread over a variety of different personal and commercial customers. The Group s maximum exposure to credit risk has increased by $51.5 billion when compared to Exposure to loans and advances to banks and customers has increased by $29 billion since 2012 due to growth in the secured lending to Banks and broad based growth across several industry sectors in WB. Further details of the loan portfolio are set out on page 41. The Group s credit risk exposure before risk mitigation arising from derivatives has increased by $12.3 billion when compared to 2012 with increase in volumes in several markets

169 Financial risk management continued Maximum exposure Credit risk management Credit risk management Master Master netting Net Maximum netting Collateral agreements Exposure exposure Collateral agreements Net Exposure Group $million $million $million $million $million $million $million $million On balance sheet Total Loans and advances 1 As per balance sheet 374, , Included within fair value through profit and loss 7, , Investment securities 2 382, , , , , ,473 As per balance sheet 102, ,379 99, ,225 Included within fair value through profit and loss 21, ,402 21, ,324 Less: Equity securities (6,454) - - (6,454) (6,432) - - (6,432) 117, , , ,117 Derivative financial instruments 3 62,161 5,147 46,242 10,772 49,495 3,245 35,073 11,177 Total balance sheet 561, ,073 46, , , ,958 35, ,767 Off balance sheet Contingent liabilities 46, ,938 44, ,293 Undrawn irrevocable standby facilities, credit lines and other commitments to lend 4 61, ,277 56, ,647 Documentary credits and short term trade-related transactions 7, ,408 7, ,610 Forward asset purchases and forward deposits Total off-balance sheet 116, , , ,261 Total 677, ,073 46, , , ,958 35, , Credit risk management Credit risk management Maximum exposure Collateral Master netting agreements Net Exposure Maximum exposure Master netting Collateral agreements Net Exposure Company $million $million $million $million $million $million $million $million On balance sheet Total Loans and advances 1 As per balance sheet 179, , Included within fair value through profit and loss 7,189 53, ,215 5, Investment securities 2 186,925 53, , ,846 65, ,697 As per balance sheet 43, ,875 43, ,615 Included within fair value through profit and loss 11, ,411 11, ,413 Less: Equity securities (3,387) - - (3,387) (2,524) - - (2,524) 51, ,899 52, ,504 Derivative financial instruments 3 60,146 4,773 42,393 12,980 47,443 2,881 34,633 9,929 Total balance sheet 298,970 58,483 42, , ,793 68,030 34, ,130 Off balance sheet Contingent liabilities 34, ,657 34, ,248 Undrawn irrevocable standby facilities, credit lines and other commitments to lend 4 32, ,636 33, ,360 Documentary credits and short term trade-related transactions 4, ,767 4, ,808 Forward asset purchases and forward deposits Total off-balance sheet 72, ,063 72, ,416 Total 371,033 58,483 42, , ,209 68,030 34, ,546 1 An analysis of credit quality is set out on page 44. Further details of collateral held by businesses and held for past due and individually impaired loans are set on page 47 2 Equity shares are excluded as they are not subject to credit risk 3 The Group enters into master netting agreements which in the event of default, results in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions 4 Excludes unconditionally cancellable facilities

170 Financial risk management continued Credit risk mitigation Loans and advances The Group has transferred to third parties by way of securitisation the rights to any collection of principal and interest on customer loan assets with a face value of $779 million (2012: $1,321 million). The Group continues to recognise these assets in addition to the proceeds and related liability of $502 million (2012: $1,093 million) arising from the securitisations. The Group considers the above customer loan assets to be encumbered. Further details of encumbered assets are provided on page 103. The Group has entered into credit default swaps for portfolio management purposes, referencing loan assets with a notional value of $21.4 billion (2012: $22.1 billion). These credit default swaps are accounted for as guarantees as they meet the accounting requirements set out in IAS 39. The Group continues to hold the underlying assets referenced in the credit default swaps as it continues to be exposed to related credit and foreign exchange risk on these assets. The Company holds collateral against loans and advances to customer and banks of $54 billion (2012: $65 billion). Further details of collateral held by businesses and held for past due and individually impaired loans are set on pages 47. The Company has transferred to third parties by way of securitisation the rights to any collection of principal and interest on customer loan assets with a face value of $40 million (2012: $54 million). The Company continues to recognise these assets in addition to the proceeds and related liability of $39 million (2012: $52 million) arising from the securitisations. The Company considers the above customer loan assets to be encumbered. Further details of encumbered assets are provided on page 104. The Company has entered into credit default swaps for portfolio management purposes, referencing loan assets with a notional value of $21.4 billion (2012: $22.1 billion). The Company continues to hold the underlying assets referenced in the credit default swaps as it continues to be exposed to related credit and foreign exchange risk on these assets. Further details of the transactions as set out in the structured entities note 24 of the financial statement on page 209. Derivatives financial instruments Cash collateral includes collateral called under a variation margin process from counterparties if total uncollateralised mark-tomarket exposure exceeds the threshold and minimum transfer amount specified in the CSA. With certain counterparties, the CSA is reciprocal and requires us to post collateral if the overall mark-to-market values of positions is in the counterparty s favour and exceeds an agreed threshold. The Group holds $3,068 million (2012: $2,700 million) under CSAs. Off-balance sheet exposures For certain types of exposures such as letters of credit and guarantees, the Group obtains collateral such as cash depending on internal credit risk assessments as well as the case of letters of credit holding legal title to the underlying assets should a default take place. Loan portfolio This section provides qualitative and quantitative information on the Group s exposure to credit risk for loans and advances to banks and customers, including the impact of credit risk mitigation and problem credit management. WB exposures are typically managed on an individual basis and consequently credit grade migration is a key component of credit risk management (as discussed on page 51). In CB, where loans are typically managed on a portfolio basis, delinquency trends are monitored consistently as part of risk management (as discussed on page 50). In both businesses, credit risk is mitigated to some degree through collateral, further details of which are set out on page 47. Pages set out a high level overview of the Group s loans to banks and customers, segmented by business and by credit quality type (neither past due not impaired; past due; and impaired). The Group manages its loan portfolio between those assets that are performing in line with their contractual terms (whether original or renegotiated) and those that are non-performing. The following table seeks to illustrate the basis on which the Group s loans and advances to customers are analysed, both in terms of credit quality and in terms of risk management, together with impairment provisions are determined

171 Financial risk management continued Review of key credit risk tables Group Consumer Banking Wholesale Banking Page Page Page reference reference reference Overview Geographic analysis Maturity analysis By business By category of borrower Credit quality analysis By business, internal credit grades and days past due By product and geography Credit risk mitigation Collateral by business and credit quality Analysis of secured / unsecured loans by category of business Collateral held by type Geographic analysis of mortgage and commercial real estate loan to value ratios Problem credit management and provisioning Policies on credit management and provisioning Non-performing loans o Definition o By business o By geography o Movement in non-performing loans and total impaired loans by business - N/A N/A Loan impairment o Movement in total impairment provisions o Movement in individual impairment provision by geography o Loan impairment charge by geography o Loan impairment movement by category of borrower Renegotiated and forborne loans Definition By business

172 Financial risk management continued Group overview This section covers a summary of the Group s loan portfolio broadly analysed by business and geography, along with an analysis of the maturity profile, credit quality and provisioning of the loan book. A more detailed analysis is set out for CB on pages 57 to 67 and WB on pages 68 to 84. Geographic analysis Loans and advances to customers grew by $11.3 billion since 31 December 2012 to $296.0 billion. The CB portfolio in 2013 has reduced by $0.6 billion, or 0.5 per cent since 2012 as strong growth in Hong Kong, Singapore and the Middle East region was offset by lower levels of Mortgages in Korea (down $4 billion). The WB portfolio has continued to grow in 2013, increasing by $12 billion, or 8 per cent compared to December The increase was noted primarily in Singapore and Hong Kong across a number of sectors. Loans and advances to banks have increased by $17.6 billion since 31 December 2012 to $86.1 billion mainly in the Americas, UK and Europe and Other Asia Pacific regions with an increase in reverse repurchase trades and negotiated credit bills. Geographic analysis - Group Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Consumer Banking 34,105 28,762 23,178 25,149 5,085 6,456 2,083 4, ,802 Wholesale Banking 25,154 33,451 6,688 24,248 6,768 14,271 6,077 50, ,785 Portfolio impairment provision (86) (59) (106) (156) (38) (100) (67) (84) (696) Total loans and advances to customers 1,2 59,173 62,154 29,760 49,241 11,815 20,627 8,093 55, ,891 Total loans and advances to banks 1,2 17,658 4,501 4,192 14, , ,512 86,168 Total Hong Kong Singapore Korea 2012 Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Consumer Banking 31,324 27,567 28,587 26,702 5,190 5,418 1,710 3, ,417 Wholesale Banking 21,515 28,321 7,710 22,526 6,827 14,672 6,327 47, ,921 Portfolio impairment provision (74) (47) (132) (166) (39) (138) (63) (63) (722) Total loans and advances to customers 1,2 52,765 55,841 36,165 49,062 11,978 19,952 7,974 50, ,616 Total loans and advances to banks 1,2 19,356 6,205 4,633 8, , ,122 68,570 1 Amounts net of impairment provision include financial instruments held at fair value through profit or loss (see note 15 on page 165) 2 Loans and advances to customers in the above table are presented on the basis of the booking location of the loan. The analysis of loans and advances by geography presented on page 152 in note 2 of the financial statements Maturity analysis Approximately half of our loans and advances to customers are short-term having a contractual maturity of one year or less. The WB portfolio remains predominantly short-term, with 64 per cent (2012: 62 per cent) of loans and advances having a contractual maturity of one year or less. In CB, 54 per cent (2012: 56 per cent) of the portfolio is in the mortgage book, which is traditionally longer term in nature and well secured. While Other and SME loans in CB have short contractual maturities, typically they may be renewed and repaid over longer terms in the normal course of business One year or less One to five years Over five years Total $million $million $million $million Consumer Banking 42,240 22,397 65, ,802 Wholesale Banking 106,827 48,449 11, ,785 Portfolio impairment provision (696) Total loans and advances to customers 295,891 Total 2012 One year or less One to five years Over five years Total $million $million $million $million Consumer Banking 38,475 23,592 68, ,417 Wholesale Banking 96,194 46,195 12, ,921 Portfolio impairment provision (722) Total loans and advances to customers 284,

173 Financial risk management continued Geographic analysis - Company Loans and advances to customers have dropped by $8.3 billion since 2012 to $134.5 billion. Compared to 2012, the Consumer Banking Portfolio has dropped by $17.2 billion or 41 per cent, mainly due to restructuring in organisation resulting in a transfer from Company to Group in Singapore. Growth in the Wholesale Banking customer portfolio was $8.8 billion or 9 per cent, since Exposure to bank counterparties has grown by $14.4 billion since 2012 to $52.4 billion. We remain highly liquid and a net lender to the interbank money market. Singapore Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million Consumer Banking 7,960 1,435 4,953 5, ,492 24,841 Wholesale Banking 33,451 5,900 6,508 13,361 1,146 49, ,936 Portfolio impairment provision (31) (30) (36) (87) (2) (84) (270) Total loans and advances to customers 1 41,380 7,305 11,425 19,265 1,154 53, ,507 Total loans and advances to banks 1 4,451 3, , ,244 52,418 Singapore Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Consumer Banking 27,567 1,579 5,062 4, ,857 42,035 Wholesale Banking 28,321 4,793 6,590 13,648 1,641 46, ,093 Portfolio impairment provision (47) (31) (37) (125) (3) (63) (306) Total loans and advances to customers 1 55,841 6,341 11,615 18,478 1,653 48, ,822 Total loans and advances to banks 1 6,205 2, , ,767 38,024 Total 1 Amounts include financial instruments held at fair value through profit or loss (see Note 15 on page 167) Maturity Analysis Company Approximately 63 per cent of the Company s loans and advances to customers are short-term having a contractual maturity of one year or less. The Wholesale Banking portfolio remains predominantly short-term, with 63 per cent (2012: 59 per cent) of loans and advances having a contractual maturity of one year or less. In Consumer Banking 22 per cent (2012: 45 per cent) of the portfolio is in the mortgage book, which is traditionally well secured. Whilst the Other and SME loans in Consumer Banking have short contractual maturities, typically they may be renewed and repaid over longer term in the normal course of business. One year or less 2013 One to five years Over five years Total $million $million $million $million Consumer Banking 16,395 4,498 3,948 24,841 Wholesale Banking 68,766 32,172 8, ,936 Portfolio impairment provision (270) Total loans and advances customers 134,507 One year or less 2012 One to five years Over five years Total $million $million $million $million Consumer Banking 16,662 5,318 20,055 42,035 Wholesale Banking 59,254 31,426 10, ,093 Portfolio impairment provision (306) Total loans and advances customers 142,

174 Financial risk management continued Impairment provisioning Credit quality loan status Analysis Risk management CB specific CB PIP 3 WB Specific CB and WB PIP 3 collective Neither past due nor impaired Credit grade Performing X X X Up to 90 days past due, with no other evidence of impairment Renegotiated loans where there has been no loss or principal haircut 1 Forborne loans where there has been no loss of principal, and which have performed under new terms for more than 180 days 1 Past due Performing X X Business Performing X X X Business Performing X Forborne loans where there has been no loss of principal, but which have performed under new terms for less than 180 days 1 Business Nonperforming X X Evidence of impairment on a specific loan Nonperforming X X Over 90 days past due 2 Over 150 days past due 2 Business/geography within nonperforming disclosure Nonperforming Nonperforming X X X 1 Renegotiated loans are primarily those where extended tenure is granted to a client or customer who is facing some difficulties but who we do not believe is impaired. Forborne loans represents those loans that are renegotiated on terms that are not consistent with those readily available in the market and/or where we have granted a concession compared with the original terms of the loan, resulting in impairment. 2 For CB, unsecured products are generally written off by 150 days past due. Individual impairment provisions (IIP) for mortgage loans are raised at 150 days past due and secured Wealth Management loans at 90 days past due. For WB, IIP is raised for all loans more than 90 days past due, unless there is sufficient collateral. 3 For CB, portfolio impairment provisions (PIP) comprises provisions to cover losses inherent in the neither past due/impaired portfolio and also a collective portfolio provisions for the past due portfolio based on the number of days past due. WB PIP only represents losses inherent in the neither past due nor impaired portfolio

175 Financial risk management continued Analysis of credit quality The table on the following page sets out an analysis of the Group s loan portfolio between those loans that are: (i) neither past due nor impaired; (ii) past due but not individually impaired; and (iii) individually impaired. Within each category we have also highlighted those loans that have been renegotiated or are considered forborne. A loan is considered to be past due when a client or customer has failed to make a payment of principal or interest when contractually due. The amount reported in this category relates to the entire loan amount and not just the amount that is past due. Further disclosures in respect of forborne and renegotiated loans, including the definitions applied to those categories, are set out on page 55. Loans to banks Loans to banks form part of the WB loan portfolio. Most of the Group s loans to banks are in the credit grade 1-5 category as we lend in the interbank market to highly rated counterparties. Exposure in the credit grade 6-8 category predominantly relates to trade finance business with financial institutions in our core markets. Loans and advances to customers Wholesale Banking As at 31 December 2013, 96 per cent (2012: 95 per cent) of loans to customers are classified as neither past due nor impaired. Within this, lending to clients within credit grades 9-11 increased by $6.6 billion compared to 2012, approximately half of which relates to lending to a connected group of companies that were reported as past due in 2012 (within the days category) and which were renegotiated, without loss, in Past due but not individually impaired loans decreased by $1.2 billion compared to Loans within the days past due category decreased by $2.5 billion, primarily reflecting the renegotiated loan exposure within the neither past due nor impaired category referred to above. Loans past due up to 30 days increased by $1.1 billion compared to 2012, largely due to a small number of exposures (part of which are held at fair value) where principal had been renegotiated but where a small amount of interest remained past due. Over 85 per cent of the loans reported in the up to 30 days past due category, including those relating to renegotiated loans, had been cured by the end of January Net impaired loans have increased by $743 million, primarily relating to a small number of exposures in Africa and India. Within this, forborne loans remained low at less than 1% of total Wholesale Banking loans. Forborne loans increased by $583 million, over half of which relates to loans held at fair value. Consumer Banking At 31 December 2013, 97 per cent (2012: 96 per cent) of CB loans are neither past due nor impaired and the spread across credit grades remains consistent with Loans past due but not individually impaired fell by $593 million, primarily in the up to 30 days category, which predominantly relates to loans where there is a temporary timing difference in payments. Net individually impaired loans fell by $29 million, despite the increase in the impairment charge in the income statement as impaired unsecured loans (such as those impacted by the PDRS in Korea) are written off after 150 days. Forborne loans remained low, at around 0.5 per cent of CB lending

176 Financial risk management continued Credit quality analysis - Group continued Neither past due nor individually impaired loans Loans to banks Loans to customers Wholesale Consumer Banking Banking $million $million $million Loans to customers Total Loans to Wholesale Consumer Total banks Banking Banking $millio n $million $million $million $million Grades ,861 61,617 58, ,477 59,117 63,216 59, ,496 Grades ,325 68,706 42, ,164 7,757 61,739 41, ,435 Grades ,825 27,964 21,321 49,285 1,457 21,324 21,596 42,920 Grade ,738 2,629 4, ,400 2,689 4,089 86, , , ,293 68, , , ,940 Of which: Renegotiated loans - 4, , ,092 Past due but not individually impaired loans Up to 30 days past due 17 2,507 2,968 5, ,434 3,559 4, days past due days past due , , days past due ,381 3,897 7, ,606 4,490 9,096 Of which: Renegotiated loans Individually impaired loans Individually impaired loans 207 5,486 1,279 6, ,400 1,232 5,632 Individual impairment provisions (100) (2,107) (642) (2,749) (103) (1,764) (566) (2,330) Net individually impaired loans 107 3, , , ,302 Of which: Forborne loans - 1, , ,452 Total loans and advances 86, , , ,587 68, , , ,338 Portfolio impairment provision (2) (300) (396) (696) (2) (300) (422) (722) Total net loans and advances 86, , , ,891 68, , , ,616 The following table sets out loans and advances held at fair value through profit and loss which are included within the table above. Neither past due nor individually impaired Grades 1-5 2,271 1,026-1, ,237-1,237 Grades ,321-3, ,048-3,048 Grades Grade Past due but not individually impaired loans 2,467 4,583-4, ,978-4,978 Up to 30 days past due Individual impairment provisions (including forborne loans) ,467 5,307-5, ,978-4,978 The following table sets out how total loans and advances are analysed between performing and non-performing: Performing loans: Neither past due nor individually impaired 86, , , ,293 68, , , ,940 Past due less than 90 days 17 3,381 3,699 7, ,606 4,282 8,888 Performing forborne loans, net of provision Non-performing loans: 86, , , ,998 68, , , ,397 Non-performing forborne loans , Other individually impaired loans net of provisions 107 2, , , , , , , ,941 Total loans and advances 86, , , ,587 68, , , ,338 Portfolio impairment provision (2) (300) (396) (696) (2) (300) (422) (722) Total net loans and advances 86, , , ,891 68, , , ,

177 Financial risk management continued Credit quality analysis - Company Loans to customers Loans to customers Neither past due nor individually impaired loans Loans to banks Wholesale Consumer Banking Banking $million $million $million Loans to Wholesale Consumer Total Total banks Banking Banking $millio n $million $million $million $million Grades ,189 37,633 6,207 43,840 29,383 40,693 17,665 58,358 Grades 6-8 9,687 45,658 12,764 58,422 7,332 40,360 16,185 56,545 Grades ,498 19,646 3,232 22,878 1,162 13,270 4,896 18,166 Grade ,044 1,604 2, ,697 2,646 52, ,981 23, ,788 37,909 95,272 40, ,715 Of which: Renegotiated loans - 3, , Past due but not individually impaired loans Up to 30 days past due 13 2, , ,227 1, days past due days past due , , days past due Of which: 13 3, , ,579 1,519 5,098 Renegotiated loans Individually impaired loans 35 4, , , ,616 Individual impairment provisions (22) (1,429) (153) (1,582) (24) (1,141) (160) (1,301) Net individually impaired loans 13 2, , , ,315 Of which: Forborne loans - 1, , Total loans and advances 52, ,936 24, ,777 38, ,093 42, ,128 Portfolio impairment provision (1) (182) (88) (270) (1) (192) (114) (306) Total net loans and advances 52, ,754 24, ,507 38, ,901 41, ,822 The following table sets out loans and advances held at fair value through profit and loss which are included within the table above. Neither past due nor individually impaired Grades 1-5 2, ,166-1,166 Grades ,892-2, ,037-3,037 Grades Grade Past due but not individually impaired loans 2,467 3,998-3, ,840-4,840 Up to 30 days past due Individually impaired loans (including forborne loans) ,467 4,722-4, ,840-4,840 The following table sets out how total loans and advances are analysed between performing and non-performing: Performing loans: Neither past due nor individually impaired 52, ,981 23, ,788 37,909 95,272 40, ,715 Past due less than 90 days 13 3, , ,579 1,452 5,031 Performing forborne loans, net of provision (2) 418 Non-performing loans: 52, ,533 24, ,272 37,910 99,271 41, ,164 Non-performing forborne loans Other individually impaired loans net of provisions 13 1, , , , , , , ,964 Total loans and advances 52, ,936 24, ,777 38, ,093 42, ,128 Portfolio impairment provision (1) (182) (88) (270) (1) (192) (114) (306) Total net loans and advances 52, ,754 24, ,507 38, ,901 41, ,

178 Financial risk management continued Group overview continued Collateral The requirement for collateral is not a substitute for the ability to pay, which is the primary consideration for any lending decisions. In determining the financial effect of collateral held against loans neither past due nor impaired, we have assessed the significance of the collateral held in relation to the type of lending. For loans and advances to banks and customers (including those held at fair value through profit or loss), the table below sets out the fair value of collateral held by the Group adjusted where appropriate in accordance with the risk mitigation policy as outlined on page 36 and for the effect of over-collateralisation. In CB, collateral levels have remained stable compared to 31 December The proportion of collateral held over impaired loans has declined compared to 2012 as the increase in impaired loan primarily relates to the unsecured portfolio. 73 per cent of the loans to customers are fully secured and around 86 per cent of collateral across the portfolio is property based. Collateral held against WB loans also covers off-balance sheet exposures including undrawn commitments and trade related instruments. At 31 December 2013, collateral coverage increased from 23 per cent to 25 per cent reflecting shift in mix with higher levels of reverse repurchase collateral as a proportion of total lending in WB compared to 31 December The unadjusted market value of collateral, which does not take into consideration over-collateralisation or adjustments outlined on page 76, was $197 billion (2012: $186 billion). Further details on collateral are explained in the CB and WB sections on page 62 and 76 respectively. Consumer Banking Wholesale Banking Total Total Past due but not individually impaired loans Individually impaired loans Total Past due but not individually impaired loans Individually impaired loans Total Past due but not individually impaired loans Individually impaired loans $million $million $million $million $million $million $million $million $million As at 31 December 2013 Collateral 89,536 2, , ,926 3,531 1,259 Amount outstanding 1 129,802 3,897 1, ,955 3,398 5, ,757 7,295 6,972 Of which: Loans to customers 129,802 3,897 1, ,785 3,381 5, ,587 7,278 6,765 Loans to banks , , As at 31 December 2012 Collateral 88,119 2, ,594 1, ,713 4,622 1,136 Amount outstanding 1 130,417 4,490 1, ,493 4,609 4, ,910 9,099 5,941 Of which: Loans to customers 130,417 4,490 1, ,921 4,606 4, ,338 9,096 5,632 Loans to banks , , Includes loans at fair value through profit or loss amounts Collateral Company Consumer Banking Wholesale Banking Total Total Past due but not individually impaired loans Individually impaired loans Total Past due but not individually impaired loans Individually impaired loans Total Past due but not individually impaired loans Individually impaired loans $million $million $million $million $million $million $million $million $million As at 31 December 2013 Collateral 8,322 1, , ,710 1, Amount outstanding 1 24, ,355 3,076 4, ,196 4,059 4,560 Of which: Loans to customers 24, ,936 3,063 4, ,777 4,046 4,525 Loans to banks , , As at 31 December 2012 Collateral 28, ,941 1, ,149 2, Amount outstanding 1 42,035 1, ,118 3,580 3, ,153 5,099 3,755 Of which: Loans to customers 42,035 1, ,093 3,579 3, ,128 5,098 3,616 Loans to banks , , Includes loans at fair value through profit or loss amounts

179 Financial risk management continued Group overview continued Collateral and other credit enhancements possessed or called upon The Group obtains assets by taking possession of collateral or calling upon other credit enhancements (such as guarantees). Repossessed properties are sold in an orderly fashion. Where the proceeds are in excess of the outstanding loan balance they are returned to the borrower. Certain equity securities acquired may be held by the Group for investment purposes and are classified as available-for-sale, and the related loan written off. The table below details the carrying value of collateral possessed and held by the Group at 31 December 2013 and 31 December 2012: Group Consumer Banking Wholesale Banking Total Consumer Banking Wholesale Banking $million $million $million $million $million $million Property Other Total Company Consumer Banking Wholesale Banking Total Consumer Banking Wholesale Banking $million $million $million $million $million $million Property Other Total Problem credit management and provisioning Non-performing loans A non-performing loan is any loan that is more than 90 days past due or is otherwise individually impaired. This excludes loans renegotiated at or after 90 days past due, but on which there has been no default in interest or principal payments for more than 180 days since renegotiation, and against which no loss of principal is expected. These loans may have a provision reflecting the time value of money and if so, are reported as part of forborne loans on page 56. The gross non-performing loans in CB have increased by 1 per cent since 31 December 2012 mainly reflecting the impact of the Personal Debt Rehabilitation Scheme (PDRS) in Korea and seasoning of the unsecured loan portfolio. In WB, non-performing loans have increased by $933 million mainly due to a small number of large exposures in India and Africa. The cover ratio is a common metric used in considering trends in provisioning and non-performing loans. It should be noted, a significant proportion of the PIP is intended to reflect losses inherent in the loan portfolio that is less than 90 days delinquent and hence recorded as performing. This metric should be considered in conjunction with other credit risk information including that contained on page 50. The cover ratio for CB remained broadly stable compared to 2012 while the cover ratio for WB was 48 per cent as at 31 December 2013, down from 51 per cent at 31 December The balance of non-performing loans not covered by individual impairment provisions (IIPs) represents the adjusted value of collateral held and the Group s estimate of the net outcome of any workout strategy. The cover ratio after taking into account collateral is 61 per cent (2012: 64 per cent)

180 Financial risk management continued Group overview continued The table below presents a movement of the gross non-performing loans to banks and customers, together with the provisions held for CB and WB and the respective cover ratios. Further details by geography are set out in pages 67 and 83 for CB and WB respectively. Group Consumer Banking Wholesale Consumer Wholesale Banking Total Banking Banking $million $million $million $million $million $million Gross Non Performing loans at 1January 1,266 4,272 5,538 1,069 3,043 4,112 Exchange translation differences (29) (141) (170) 4 (43) (39) Transfer to Asset held for sale (111) - (111) Additions 1,053 1,912 2, ,681 2,367 Classified as non-performing during the year 1,024 1,912 2, ,533 2,192 Recoveries on loans and advances previously written off Maturities and disposals (905) (838) (1,743) (493) (409) (902) Transfers to performing loans (130) (86) (216) (88) (175) (263) Net repayments (108) (613) (721) (86) (163) (249) Amounts written off (578) (44) (622) (265) (66) (331) Disposals of loans (89) (95) (184) (54) (5) (59) At 31 December 1,274 5,205 6,479 1,266 4,272 5,538 Total Individual impairment provisions 1 (590) (2,193) (2,783) (525) (1,866) (2,391) Net non-performing loans 684 3,012 3, ,406 3,147 Portfolio impairment provision (396) (302) (698) (422) (302) (724) Total 288 2,710 2, ,104 2,423 Cover ratio (%) 77% 48% 54% 75% 51% 56% 1 The difference to total individual impairment provision reflects provisions against performing forborne loans that are not included within non-performing loans as they have been performing for 180 days. Details on renegotiated and forborne loans are set out on page 54 Company Consumer Banking Wholesale Banking Total Consumer Banking Wholesale Banking Total $million $million $million $million $million $million At 1 January 301 3,101 3, ,034 2,354 Exchange translation difference (12) (113) (125) (2) (36) (38) Additions 83 1,379 1, ,333 1,425 Classified as impaired during the year 79 1,379 1, ,209 1,291 Recoveries on loans and advances previously written off Maturities and disposals (117) (518) (635) (109) (230) (339) Transfers to performing loans (5) (31) (36) (13) (55) (68) Net repayments (22) (412) (434) 9 (68) (59) Amounts written off (34) (25) (59) (49) (31) (80) Disposals of loans (56) (50) (106) (56) (76) (132) At 31 December 255 3,849 4, ,101 3,402 Individual impairment provisions 1 (153) (1,436) (1,589) (159) (1,164) (1,323) Net non-performing loans 102 2,417 2, ,937 2,079 Portfolio impairment provision (88) (183) (271) (114) (193) (307) Total 14 2,234 2, ,744 1,772 Cover ratio (%) 95% 42% 45% 91% 44% 48% 1 The difference to total individual impairment provision reflects provisions against performing forborne loans that are not included within non-performing loans as they have been performing for 180 days

181 Financial risk management continued Group overview continued Loan impairment The Group s loan loss provisions are established to recognise incurred impairment losses either on specific loan assets or within a portfolio of loans and advances. Individually impaired loans are those loans against which individual impairment provisions have been raised. Estimating the amount and timing of future recoveries involves significant judgement, and considers the level of arrears as well as the assessment of matters such as future economic conditions and the value of collateral, for which there may not be a readily accessible market. Loan losses that have been incurred but have not been separately identified at the balance sheet date are determined on a portfolio basis, which takes into account past loss experience as a result of uncertainties arising from the economic environment, and defaults based on portfolio trends. Actual losses identified could differ significantly from the impairment provisions reported as a result of uncertainties arising from the economic environment. The total amount of the Group s impairment allowances is inherently uncertain being sensitive to changes in economic and credit conditions across the geographies in which the Group operates. Economic and credit conditions are interdependent within each geography and as a result there is no single factor to which the Group s loan impairment allowances as a whole are sensitive. It is possible that actual events over the next year differ from the assumptions built into the model resulting in material adjustments to the carrying amount of loans and advances. Consumer Banking Medium sized entities among SME customers and Private Banking customers are assessed for impairment in the same way as WB loans, based on the individual circumstances of each borrower (see WB on the following page). All other CB product portfolios consist of a large number of comparatively small exposures, where it is impractical to monitor each loan on an individual basis for impairment. The primary indicator of potential impairment in these portfolios is therefore delinquency. A loan is considered delinquent (or past due ), when the customer has failed to make a principal or interest payment in accordance with the loan contract. For delinquency reporting purposes we follow industry standards measuring delinquency as of one, 30, 60, 90, 120 and 150 days past due. Impairment is measured against these buckets in two stages: 8. In the first stage we raise portfolio impairment provisions (PIP). These are calculated by applying expected loss rates to delinquency buckets. These are based on past experience of loss supplemented by an assessment of specific factors that affect each portfolio and that in particular aim to adjust historic data for current market conditions. Loss rates are generally calculated separately for each product in each country (either through the use of historical data or using proxies) and separate loss rates are used for renegotiated and forborne loans to reflect their increased risk. PIPs take into account the fact that, while delinquency is an indication of impairment, not all delinquent loans (particularly those in the early stages of delinquency) will in fact be impaired. This will only become apparent with the passage of time and as we investigate the causes of delinquency on a case by case basis. (Accounts that are overdue by more than 30 days are more closely monitored and subject to specific collections processes for this purpose). At the outset of delinquency therefore it is not possible to determine whether a loan is impaired; it is only possible to estimate the likelihood that it is. This is taken account of in the PIP method, which estimates loss by extrapolating past experience over whole portfolios, rather than analysing individual loans on a case by case basis. 9. In the second stage we are able to replace PIP with individual impairment provisions (IIP) as we develop more knowledge about each individual account. We apply IIP after the following number of days delinquency: a. For mortgages after 150 days b. For secured wealth management products after 90 days c. For unsecured consumer finance loans after 90 days d. For all other unsecured loans and loans secured on automobiles, after 150 days IIP provisions are based on the estimated present values of future cash flows, in particular those resulting from the realisation of security. The days past due used to trigger IIP are driven by past experience, which shows that once an account reaches the relevant number of days past due, the probability of recovery (other than by raising security as appropriate) is low. For all products there are certain situations where the IIP process is accelerated, such as in cases involving bankruptcy, customer fraud and death. IIP is also accelerated for all restructured accounts to 90 days past due (unsecured and automobile finance) and 120 days past due (secured loans) respectively. Loan write off is again broadly driven by past experience of the point at which further recovery is unlikely. Write off occurs at the same time that IIP is established for all products except mortgage loans, which have not been restructured. The latter fully impaired after 720 days past due. The fact that it is not possible to be certain that a loan is impaired until several months after it becomes delinquent means that it is also not possible to be certain which delinquent loans are fully non-performing. The Group has determined that it is more likely than not that a loan is non-performing after 90 days and therefore uses 90 days delinquency as the distinguishing feature between performing and non-performing CB loans. This is however, only an approximate measure and it also means that, for CB, impaired loans do not equate to non-performing loans, because impairment cannot be generally determined on an individual basis until a later date

182 Financial risk management continued Group overview continued It is inevitable that at the balance sheet date, the non-delinquent portfolio will include a few impaired loans that have not manifested themselves as delinquent. These are known as incurred, but not reported losses. A PIP is raised against these in the same way as PIP is raised for delinquent loans by applying past experience adjusted for current conditions to non-delinquent loans on a portfolio basis. Wholesale Banking Loans are classified as impaired where analysis and review indicates that full payment of either interest or principal is questionable, or as soon as payment of interest or principal is 90 days overdue. Impaired accounts are managed by our specialist recovery unit, GSAM, which is separate from our main businesses. Where any amount is considered irrecoverable, an individual impairment provision is raised. This provision is the difference between the loan carrying amount and the present value of estimated future cash flows. The individual circumstances of each customer are taken into account when GSAM estimates future cash flow. All available sources, such as cash flow arising from operations, selling assets or subsidiaries, realising collateral or payments under guarantees, are considered. In any decision relating to the raising of provisions, we attempt to balance economic conditions, local knowledge and experience, and the results of independent asset reviews. Where it is considered that there is no realistic prospect of recovering a portion of an exposure against which an impairment provision has been raised, that amount will be written off. As with Consumer Banking, a PIP is held to cover the inherent risk of losses which, although not identified, are known through experience to be present in any loan portfolio. In Wholesale Banking, this is set with reference to historic loss rates and subjective factors such as the economic environment and the trends in key portfolio indicators. The PIP methodology provides for accounts for which an individual impairment provision has not been raised. Impaired loans In Consumer Banking, individual impaired loans broadly remained stable compared to 2012 at $1.5bn. Wholesale Banking individually impaired loans increased by $1 billion during the year primarily due to a small number of large exposures in India and Africa. The following table sets out the movement in individually impaired for banks and customers by business. Group Consumer Banking Wholesale Consumer Wholesale Banking Total Banking Banking Total $million $million $million $million $million $million Gross impaired loans at 1 January 1,440 4,709 6,149 1,223 3,450 4,673 Exchange translation differences (32) (140) (172) 12 (40) (28) Assets held for sale (111) - (111) Classified as impaired during the year 1,104 1,967 3, ,561 2,243 Transferred to not impaired during the year (118) (87) (205) (47) (175) (222) Other movement 1 (806) (756) (1,562) (430) (87) (517) Gross impaired loans at 31 December 1,477 5,693 7,170 1,440 4,709 6,149 Company Consumer Banking Wholesale Consumer Wholesale Banking Total Banking Banking Total $million $million $million $million $million $million Gross impaired loans at 1 January 300 3,522 3, ,417 2,724 Exchange translation differences (12) (113) (125) (2) (36) (38) Classified as impaired during the year 79 1,436 1, ,239 1,329 Transferred to not impaired during the year (6) (3) (9) (10) (48) (58) Other movement 1 (107) (489) (596) (85) (50) (135) Gross impaired loans at 31 December 254 4,353 4, ,522 3,822 1 other movement includes repayments, amounts written off and disposals of loans

183 Financial risk management continued Group overview continued Individual and portfolio impairment provisions IIPs increased by $416 million as compared to 31 December This was primarily in India ($83 million increase) and Africa ($223 million increase) as a result of a small number of WB exposures and within CB in Korea ($44 million increase) due to higher levels of filings under the PDRS. PIP remained at similar levels as 2012 with the reduction due to the transfer of certain businesses in Korea to as held for sale. The amounts written off primarily related to CB relating to higher levels of write-offs in unsecured lending which are written off after 150 days past due. The following tables set out the movements in IIPs and PIPs : Group Individual impairment provisions Portfolio impairment provision Total Individual impairment provisions Portfolio impairment provision $million $million $million $million $million $million Provisions held at 1 January 2, ,157 1, ,672 Exchange translation differences (81) (16) (97) Amounts written off (1,173) - (1,173) (935) - (935) Release of acquisition fair values (3) - (3) (3) - (3) Recoveries of amounts previously written off Discount unwind (93) - (93) (77) - (77) Transfer to asset held for sale (42) (25) (67) New provisions 2, ,177 1, ,794 Recoveries/provisions no longer required (410) (155) (565) (448) (151) (599) Net charge/(release) against profit 1, ,612 1,230 (35) 1,195 Provisions held at 31 December 2, ,547 2, ,157 Total Company Individual impairment provisions Portfolio impairment provision Total Individual impairment provisions Portfolio impairment provision $million $million $million $million $million $million At 1 January 1, ,632 1, ,365 Exchange translation differences (80) (36) (116) (7) (1) (8) Amounts written off (302) - (302) (324) - (324) Recoveries of amounts previously written off Discount unwind (55) - (55) (42) - (42) New provisions Recoveries/provisions no longer required (113) (62) (175) (143) (79) (222) Net charge/(release) against profit (40) 541 Provisions held at 31 December 1, ,875 1, ,632 Total

184 Financial risk management continued Group overview continued The tables below sets out the movement in individual impairment provisions by geography: Group Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Provisions held at 1 January , ,433 Exchange translation differences (36) (37) (11) (3) - (81) Amounts written off (161) (154) (339) (364) (46) (59) (28) (22) (1,173) Total Releases of acquisition fair values (1) - (2) - - (3) Recoveries of amounts previously written off Discount unwind (3) (5) (10) (21) (22) (26) (3) (3) (93) Transferred to assets held for sale - - (42) (42) New provisions ,007 Recoveries/provisions no longer required (48) (29) (92) (130) (21) (68) (14) (8) (410) Net impairment charge against profit ,597 Provisions held at 31 December , ,849 Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Provisions held at 1 January ,926 Exchange translation differences (7) (9) (4) 1 4 Amounts written off (155) (57) (175) (319) (42) (123) (29) (35) (935) Releases of acquisition fair values (2) - (2) - 1 (3) Recoveries of amounts previously written off Discount unwind (2) (3) (13) (17) (13) (28) (1) - (77) New provisions ,678 Recoveries/provisions no longer required (49) (49) (81) (165) (26) (53) (14) (11) (448) Net impairment charge against profit ,230 Provisions held at 31 December , ,433 Total

185 Financial risk management continued Group overview continued Company Singapore Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million Provisions held at 1 January ,325 Exchange translation differences (19) (24) (38) 3 (2) - (80) Amounts written off (127) (74) (46) (44) - (11) (302) Recoveries of amounts previously written off Discount unwind (4) (5) (21) (22) - (3) (55) New provisions Recoveries/provisions no longer required (20) (15) (20) (51) - (7) (113) Net impairment charge against profit Provisions held at 31 December ,604 Singapore Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Provisions held at 1 January ,017 Exchange translation differences 1 (4) (6) (7) Amounts written off (102) (76) (42) (73) (1) (30) (324) Recoveries of amounts previously written off Discount unwind (3) (4) (13) (22) - - (42) New provisions Recoveries/provisions no longer required (49) (17) (20) (45) (1) (11) (143) Net impairment charge against profit Provisions held at 31 December ,325 Total

186 Financial risk management continued Group overview continued Renegotiated and forborne loans In certain circumstances, the Group may renegotiate client and customer loans. Loans that are renegotiated for commercial reasons, which may occur, for example, if a client had a credit rating upgrade, are not included within this disclosure because they are not indicative of any credit stress. Loans that are renegotiated primarily to grant extended tenor to a client or customer who is facing some difficulties but who we do not believe is impaired are reported in other renegotiated loans in the disclosures below. Loans that are renegotiated on terms that are not consistent with those readily available in the market and/or where we have granted a concession compared to the original terms of the loans, are considered to be subject to forbearance strategies and are disclosed as Loans subject to forbearance in the disclosures below, which is a subset of impaired loans. Forbearance strategies assist customers who are temporarily in financial distress and are unable to meet their original contractual repayment terms. Forbearance can be initiated by the customer, the bank or a third party (including Government sponsored programmes or a conglomerate of credit institutions) and includes debt restructuring, such as a new repayment schedule, payment deferrals, tenor extensions and interest only payments. Once a loan is subject to forbearance or is renegotiated, the loan continues to be reported as such, until the loan matures or is otherwise derecognised. Loans subject to forbearance are initially managed as part of the Group s non-performing portfolio. If a forborne loan meets the criteria (past due more than 90 days or otherwise impaired), it is no longer managed as a non-performing loan although it remains impaired. Consumer Banking In CB, excluding Medium Enterprises and Private Banking, all loans subject to forbearance (in addition to other renegotiated loans) are managed within a separate portfolio. If such loans subsequently become past due, write off and IIP is accelerated to 90 days past due (unsecured loans and automobile finance) or 120 days past due (secured loans). The accelerated loss rates applied to this portfolio are derived from experience with other renegotiated loans, rather than the CB portfolio as a whole, to recognise the greater degree of inherent risk. At 31 December 2013, $728 million (2012: $769 million) of CB loans were subject to forbearance programmes which required impairment provisions to be recognised. This represents 0.5 per cent of total loans and advances to CB customers. These loans were largely concentrated in countries that have active government sponsored forbearance programmes and arise from unsecured lending including credit cards and Consumer Finance. Provision coverage against these loans was 13 per cent (2012: 12 per cent), reflecting collateral held and expected recovery rates. Wholesale Banking For WB including Medium Enterprises and Private Banking accounts, forbearance and other renegotiations are applied on a caseby-case basis and are not subject to business wide programmes. In some cases, a new loan is granted as part of the restructure and in others, the contractual terms and repayment of the existing loans are changed or extended (for example, interest only for a period). Loans classified as subject to forbearance are managed by GSAM and are kept under constant close review to assess and confirm the client s ability to adhere to the restructured repayment strategy. Accounts are reviewed if there is a significant event that could result in deterioration in their ability to repay. If the terms of the renegotiation are such that, where the present value of the new cash flows is lower than the present value of the original cash flows, the loan would be considered to be impaired and at a minimum a discount provision would be raised and shown under Loans subject to Forbearance. These accounts are monitored as described on page 36. Loans subject to renegotiated and forbearance loans increased by $4,581 million compared to 2012, of which $4,043 million was in other renegotiated loans. The increase in other renegotiated loans primarily relates to a connected group of companies where the amounts outstanding were subject to renegotiation in We recognised no impairment at the time of renegotiation and we continue to be comfortable from an impairment perspective. At 31 December 2012, these amounts were reported within the past due days category. As these counterparties have complied with the revised terms for more than 180 days, the renegotiated lending is deemed to be performing and is classified within Neither past due nor impaired. The remainder of the increase includes loans on which the payment dates for principal payments have been extended pending a more wide-ranging renegotiation of the exposure. A small number of these loans are reported as past due within the up to 30 days category as an amount of interest remained outstanding at the year end which has since been paid. Forborne loans increased by $538 million compared to Over half of the increase relates to loans that are held at fair value, which consequently do not have an IIP

187 Financial risk management continued Group overview continued The table below shows analysis forborne and other renegotiated loans by business: Consumer Banking Wholesale Banking Total Consumer Banking Wholesale Banking Total $million $million $million $million $million $million Managed as performing Neither past due or impaired 389 4,233 4, ,092 Past due but not impaired Other renegotiated loans 389 4,816 5, ,092 Impaired loans: Performing forborne loans (gross) Individual impairment provisions (52) (14) (66) (41) (1) (42) Net performing forborne loans Total performing renegotiated and forborne loans 540 5,290 5, ,209 1,661 Managed as non-performing Impaired loans: Forborne loans (gross) 525 1,228 1, ,169 Individual impairment provisions (45) (385) (430) (55) (231) (286) Net non-performing forborne loans , Total non-performing forborne loans , Total renegotiated and forborne loans 1,020 6,133 7, ,552 2,544 Other renegotiated loans 389 4,816 5, ,092 Loans subject to forbearance 631 1,317 1, ,452 Total renegotiated and forborne loans 1,020 6,133 7, ,552 2,

188 Financial risk management continued Consumer Banking loan portfolio The CB portfolio in 2013 was marginally down compared to Mortgages declined by $2.8 billion compared to 2012 as regulatory restrictions continued to impact growth in a number of markets, particularly in Korea and Singapore. We did, however, continue to originate and sell $3 billion of fixed rate mortgages in Korea under the Mortgage Purchase Program to the Korea Housing Finance Corporation. Other loans, which include credit cards and personal loans, (including those related to Private Banking), increased by $1.6 billion since 2012 mainly due to higher level of Private Banking particularly in Singapore and the Americas, UK & Europe. Africa also saw strong growth in unsecured products, up 22 per cent compared to SME lending rose 3 per cent, mainly in Hong Kong. PIPs fell $26 million, largely due to the transfer of the Consumer Finance business in Korea to held for sale. Excluding this, the PIP was broadly flat compared to Geographic analysis Group Middle East Other Asia & Other S Americas UK Hong Kong Singapore Korea Pacific India Asia Africa & Europe Total $million $million $million $million $million $million $million $million $million Loans to individuals Mortgages 23,252 13,983 12,641 14,224 2,176 1, ,355 69,789 Other 7,468 11,471 5,663 5, ,397 1,367 3,559 39,369 Small and medium enterprises 3,385 3,308 4,874 5,335 2,055 1, , ,105 28,762 23,178 25,149 5,085 6,456 2,083 4, ,802 Portfolio impairment provision (57) (28) (93) (124) (21) (45) (25) (3) (396) Total loans and advances to customers 34,048 28,734 23,085 25,025 5,064 6,411 2,058 4, ,406 Hong Kong Singapore Korea 2012 Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Loans to individuals Mortgages 21,441 14,278 16,686 14,832 2,284 1, ,221 72,627 Other 6,843 10,038 6,936 6, ,902 1,152 2,696 37,760 Small and medium enterprises 3,040 3,251 4,965 5,483 2, ,030 31,324 27,567 28,587 26,702 5,190 5,418 1,710 3, ,417 Portfolio impairment provision (50) (26) (116) (140) (20) (44) (22) (4) (422) Total loans and advances to customers 31,274 27,541 28,471 26,562 5,170 5,374 1,688 3, ,995 Total

189 Financial risk management continued Consumer Banking loan portfolio continued Geographic analysis Company Compared to 2012, the Consumer Banking Portfolio is down by $17.2 billion or 41 per cent. The proportion of mortgages in the Company Banking Portfolio is lower than the Group proportion at 22 per cent. SME Lending has reduced by $2.9 billion or 46 per cent. Singapore Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million Loans to individuals Mortgages ,117 1, ,356 5,511 Other 7, ,211-3,066 15,884 Small and medium enterprises , ,446 7,960 1,435 4,953 5, ,492 24,841 Portfolio impairment provision (1) (21) (21) (42) - (3) (88) Total loans and advances to customers 7,959 1,414 4,932 5, ,489 24,753 Singapore Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Loans to individuals Mortgages 14, ,228 1, ,856 Other 10,038 1, ,728-2,308 16,841 Small and medium enterprises 3, , ,338 27,567 1,579 5,062 4, ,857 42,035 Portfolio impairment provision (26) (24) (20) (41) - (3) (114) Total loans and advances to customers 27,541 1,555 5,042 4, ,854 41,921 Maturity analysis - Group The proportion of CB loans maturing in less than one year increased by $3.8 billion compared to 31 December 2012, reflecting higher levels of lending to SME and Private Banking clients which are typically of short tenor. The following tables show the contractual maturity of loans and advances to customers by each principal category of borrower. Total One year or less 2013 One to five years Over five years Total $million $million $million $million Loans to individuals Mortgages 4,273 8,640 56,876 69,789 Other 26,709 10,346 2,314 39,369 Small and medium enterprises 11,258 3,411 5,975 20,644 42,240 22,397 65, ,802 Portfolio impairment provision (396) Total loans and advances to customers 129,406 One year or less 2012 One to five years Over five years Total $million $million $million $million Loans to individuals Mortgages 3,612 9,140 59,875 72,627 Other 24,082 10,923 2,755 37,760 Small and medium enterprises 10,781 3,529 5,720 20,030 38,475 23,592 68, ,417 Portfolio impairment provision (422) Total loans and advances to customers 129,

190 Financial risk management continued Consumer Banking loan portfolio continued Maturity Analysis Company One year or less 2013 One to five years Over five years Total $million $million $million $million Loans to individuals Mortgages 1,529 1,253 2,729 5,511 Other 12,964 2, ,884 Small and medium enterprises 1, ,446 16,395 4,498 3,948 24,841 Portfolio impairment provision (88) 24,753 One year or less 2012 One to five years Over five years Total $million $million $million $million Loans to individuals Mortgages 611 1,772 16,473 18,856 Other 13,418 2, ,841 Small and medium enterprises 2, ,752 6,338 16,662 5,318 20,055 42,035 Portfolio impairment provision (114) 41,

191 Financial risk management continued Consumer Banking loan portfolio continued Credit quality analysis - Group The tables below set out the loan portfolio for CB by product and by geography between those loans that are neither past due nor impaired, those that are past due but not individually impaired and those that are individually impaired. The overall credit quality of the portfolio remains good with over 95 per cent of the portfolio neither past due nor impaired. The mortgage portfolio is well collateralised and has an average loan to value ratio of 47.7 per cent. The proportion of the past due but not individually impaired loans decreased to $3.9 billion or 3 per cent of the loan portfolio. Three quarters of the decrease of $593 million arose in the less than 30 days past due category, primarily due to variation in timing differences in payments in Korea, Malaysia and Singapore. Individually impaired loans increased by $47 million primarily in Singapore and Hong Kong due to the seasoning of the unsecured loan portfolio and the majority of the $76 million increase in individual impairment provision was due to increased levels of PDRS filings in Korea. The PIP was flat with an increase in Hong Kong offset by reduced provisions in the other regions. The PIP declined marginally due to the impact of exchange rates. Neither past due nor individually impaired Past due but not individually impaired Individually impaired loans Total Neither past due nor individually impaired Past due but not individually impaired Individually impaired loans $million $million $million $million $million $million $million $million Loans to individuals Mortgages 67,844 1, ,905 70,313 2, ,764 Other 37,742 1, ,673 35,810 1, ,988 Small and medium enterprises 19, ,866 19, , ,268 3,897 1, , ,261 4,490 1, ,983 Individual impairment provision (642) (566) Portfolio impairment provision (396) (422) Total loans and advances to customers 129, ,995 Total Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million $million $million Neither past due nor individually impaired loans 33,622 28,245 22,263 23,636 4,587 6,025 2,006 4, ,268 Past due but not individually impaired loans , ,897 Individually impaired loans ,279 Individual impairment provisions (24) (19) (185) (154) (32) (164) (14) (50) (642) Portfolio impairment provision (57) (28) (93) (124) (21) (45) (25) (3) (396) Total loans and advances to customers 34,048 28,734 23,085 25,025 5,064 6,411 2,058 4, , Hong Kong Singapore Korea Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Neither past due nor individually impaired loans 30,878 26,956 27,340 25,142 4,825 4,772 1,629 3, ,261 Past due but not individually impaired loans ,059 1, ,490 Individually impaired loans ,232 Individual impairment provisions (24) (15) (141) (140) (29) (165) (12) (40) (566) Portfolio impairment provision (50) (26) (116) (140) (20) (44) (22) (4) (422) Total loans and advances to customers 31,274 27,541 28,471 26,562 5,170 5,374 1,688 3, ,995 Total

192 Financial risk management continued Consumer Banking loan portfolio continued Credit quality analysis - Company Neither past due nor individually impaired Past due but not individually impaired Individually impaired loans Total Neither past due nor individually impaired Past due but not individually impaired Individually impaired loans $million $million $million $million $million $million $million $million Loans to individuals Mortgages 5, ,574 18, ,923 Other 15, ,910 16, ,863 Small and medium enterprises 3, ,510 5, ,409 23, ,994 40,443 1, ,195 Individual impairment provisions (153) (160) Portfolio impairment provision (88) (114) Total loans and advances 24,753 41,921 Total Singapore Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Neither past due nor individually impaired 7,937 1,349 4,464 5, ,416 23,807 Past due but not individually impaired loans Individually impaired loans Individual impairment provisions - (5) (32) (106) (1) (9) (153) Portfolio impairment provision (1) (21) (21) (42) - (3) (88) Total loans and advances 7,959 1,414 4,932 5, ,489 24,753 Total 2012 Singapore Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Neither past due nor individually impaired 26,955 1,544 4,710 4, ,793 40,443 Past due but not individually impaired loans ,519 Individually impaired loans Individual impairment provisions (15) (5) (29) (109) (2) - (160) Portfolio impairment provision (26) (24) (20) (41) 1 (4) (114) Total loans and advances 27,541 1,555 5,042 4, ,854 41,921 Total

193 Financial risk management continued Consumer Banking loan portfolio continued Credit risk mitigation A secured loan is one where the borrower pledges an asset as collateral which the Group is able to take possession in the event that the borrower defaults. All secured loans are considered fully secured if the fair value of the collateral is equal to or greater than the loan at the time of origination. Other secured loans are considered to be partially secured. Within CB, 73 per cent of lending is fully secured and 9 per cent is partially secured. The following tables present an analysis of CB loans by product split between fully secured, partially secured and unsecured. Secured and unsecured loans Group Fully Secured Partially Fully secured Unsecured Total 1 Secured Partially secured Unsecured Total 1 $million $million $million $million $million $million $million $million Loans to individuals Mortgages 69, ,789 72, ,627 Other 17,737-21,632 39,369 15,509-22,251 37,760 Small and medium enterprises 6,540 11,756 2,348 20,644 5,985 11,634 2,411 20,030 94,066 11,756 23, ,802 94,121 11,634 24, ,417 Percentage of total loans 73% 9% 18% 72% 9% 19% 1 Amounts net of individual impairment provisions Company Fully Secured Partially Fully secured Unsecured Total 1 Secured Partially secured Unsecured Total 1 $million $million $million $million $million $million $million $million Loans to individuals Mortgages 5, ,511 18, ,856 Other 12,383-3,501 15,884 11,529-5,312 16,841 Small and medium enterprises 392 2, ,446 2,219 3, ,338 18,286 2,681 3,874 24,841 32,604 3,283 6,148 42,035 Percentage of total loans 73% 11% 16% 78% 8% 14% 1 Amounts net of individual impairment provisions

194 Financial risk management continued Consumer Banking loan portfolio continued Mortgage loan-to-value ratios by geography The following table provides an analysis of loan-to-value (LTV) ratios by geography for the mortgages portfolio. LTV ratios are determined based on the ratio of the current mortgage outstanding to the current fair value of the properties on which they are secured. Overall the average LTV ratio for the portfolio is 47.7 per cent compared to 47.8 per cent in Our major mortgage markets of Hong Kong, Singapore and Korea have an average LTV of less than 50 per cent. The proportion of the portfolio with average LTVs in excess of 100 per cent has declined from 0.5 per cent to 0.3 per cent, primarily within the MESA region due to improving economic conditions, particularly in the UAE, in the current year. In Hong Kong, average LTVs increased reflecting an increased focus on first time buyers in Group Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe % % % % % % % % % Less than 50 per cent per cent to 59 per cent per cent to 69 per cent per cent to 79 per cent per cent to 89 per cent per cent to 99 per cent per cent and greater Average Portfolio loan to value Loans to individuals - Mortgages ($million) 23,252 13,983 12,641 14,224 2,176 1, ,355 69,789 Total Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe % % % % % % % % % Less than 50 per cent per cent to 59 per cent per cent to 69 per cent per cent to 79 per cent per cent to 89 per cent per cent to 99 per cent per cent and greater Average Portfolio loan to value Loans to individuals - Mortgages ($million) 21,441 14,278 16,686 14,832 2,284 1, ,221 72,627 Total

195 Financial risk management continued Consumer Banking loan portfolio continued Mortgage loans to value ratios by geography continued Company 2013 Singapore Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe Total % % % % % % % Less than 50 per cent per cent to 59 per cent per cent to 69 per cent per cent to 79 per cent per cent to 89 per cent per cent to 99 per cent per cent and greater Average Portfolio loan to value Loans to individuals - Mortgages ($million) ,117 1, ,356 5,511 Singapore Other Asia Pacific India 2012 Middle East & Other S Asia Africa Americas UK & Europe Total % % % % % % % Less than 50 per cent per cent to 59 per cent per cent to 69 per cent per cent to 79 per cent per cent to 89 per cent per cent to 99 per cent per cent and greater Average Portfolio loan to value Loans to individuals - Mortgages ($million) 14, ,228 1, ,

196 Financial risk management continued Consumer Banking loan portfolio continued Loan impairment The total net impairment charge in CB in 2013 increased by $360 million, or 53 per cent, over The increase is mainly driven by the ongoing impact of PDRS in Korea, the growth and maturity of unsecured business acquired in previous years, lower loan sales compared to prior periods in Taiwan and increased levels of provisioning in Thailand relating to a specific segment for which sales have been discontinued. There was a portfolio impairment increase of $19 million in 2013 (2012: $nil) due to the release in the prior period in the MESA region. Group 2013 Hong Kong Singapore Korea Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Gross impairment charge ,384 Recoveries/provisions no longer required (30) (27) (87) (127) (18) (54) (12) (4) (359) Net individual impairment charge ,025 Portfolio impairment provision charge/ (release) (10) Net impairment charge ,034 Total Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas Total $million $million $million $million $million $million $million $million $million Gross impairment charge ,092 Recoveries/provisions no longer required (44) (49) (72) (157) (19) (52) (12) (3) (408) Net individual impairment charge Portfolio impairment provision charge/(release) (9) 3 (19) 3 - (10) Net impairment charge The tables below set out the individual impairment charge by geography. Company 2013 Singapore Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million Gross impairment charge Recoveries/provisions no longer required (18) (15) (17) (42) - (4) (96) Net individual impairment charge Portfolio impairment provision charge Net impairment charge Singapore Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million Gross impairment charge Recoveries/provisions no longer required (49) (17) (18) (43) (1) (3) (131) Net individual impairment charge (1) Portfolio impairment provision charge/ (release) 2 (1) 3 (19) - - (15) Net impairment charge (1)

197 Financial risk management continued Consumer Banking loan portfolio continued Impairment provisions on loans and advances The following table sets out the movement in total impairment provisions for CB loans and advances as at 31 December by each principal category of borrower: Group Impairment provision held as at 1 January 2013 Net impairment charge 2013 Amounts written off/ Impairment other provision held movements as at 31 December $million $million $million $million Loans to individuals Mortgages (33) 116 Other (813) 304 Small and medium enterprises (103) ,025 (949) 642 Portfolio impairment provision (35) ,034 (984) 1,038 Impairment provision held as at 1 January 2012 Net impairment charge/(release) 2012 Amounts written off/ other movements 2012 Impairment provision held as at 31 December 2012 $million $million $million $million Loans to individuals Mortgages (8) 137 Other (486) 228 Small and medium enterprises (105) (599) 566 Portfolio impairment provision 424 (10) (591) 988 Company Impairment provision held as at 1 January 2013 Net impairment charge 2013 Amounts written off/ Impairment other provision held movements as at 31 December $million $million $million $million Loans to individuals Mortgages 67 1 (5) 63 Other (183) 76 Small and medium enterprises (29) (217) 203 Portfolio impairment provision (32) (249) 291 Impairment provision held as at 1 January 2012 Net impairment charge/(release) 2012 Amounts written off/ other movements 2012 Impairment provision held as at 31 December 2012 $million $million $million $million Loans to individuals Mortgages Other (174) 22 Small and medium enterprises (15) (188) 160 Portfolio impairment provision 131 (15) (2) (190)

198 Financial risk management continued Consumer Banking loan portfolio continued Non-performing loans Gross non-performing loans have marginally increased, up $8 million compared to 2012, largely due to the seasoning of the unsecured portfolio, particularly in Hong Kong and Singapore. This was partly offset by a decline in the UAE where credit quality has improved due to economic recovery. The following tables set out the total non-performing loans and related provisions for CB by geography: Group Hon g Kon Other Asia Pacific 2013 Middle East & Other S Asia Americas UK & Europe g Singapore Korea India Africa Total $mill ion $million $million $million $million $million $million $million $million Loans and advances Gross non-performing loans ,274 Individual impairment provision 1 (24) (14) (185) (107) (32) (164) (14) (50) (590) Non-performing loans net of individual impairment provision Portfolio impairment provision (396) Net non-performing loans and advances 288 Cover ratio 77% Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Loans and advances Gross non-performing loans ,266 Individual impairment provision 1 (24) (14) (141) (100) (29) (165) (12) (40) (525) Non-performing loans net of individual impairment provision Portfolio impairment provision (422) Net non-performing loans and advances 319 Cover ratio 75% Company Loans and advances 2013 Singapore Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million Gross non-performing loans Individual impairment provisions 1 - (5) (32) (106) (1) (9) (153) Non-performing loans net of individual impairment provisions (9) 102 Portfolio impairment provision (88) Net non-performing loans and advances 14 Cover ratio 95% 2012 Singapore Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million Loans and advances Gross non-performing Individual impairment provisions 1 (14) (5) (29) (109) (2) - (159) Non-performing loans net of individual impairment provisions Portfolio impairment provision (114) Net non-performing loans and advances 28 Cover ratio 91% 1 The difference to total individual impairment provision at 31 December 2013 and 31 December 2012 reflects provisions against restructured loans that are not included within non-performing loans as they have been performing for 180 days in line with the definition provided on page 50 Total

199 Financial risk management continued Wholesale Banking loan portfolio The WB loan portfolio has increased by $12 billion, or 8 per cent, compared to December Over two-thirds of the growth is due to Trade Finance and Corporate Finance as Wholesale Banking continues to deepen relationships with clients in core markets. Growth in the loan portfolio has been broadly spread, with growth in Hong Kong, Singapore and the Americas, UK & Europe regions partly offset by a decline in Korea. Growth in Hong Kong and Singapore is mainly in trade loans and is concentrated in the Commerce and Manufacturing industry segments. Korea loans fell in the Manufacturing segment as we continue to optimise the portfolio. The growth in the Americas, UK & Europe region is as a result of a certain number of large ticket leveraged finance deals primarily relating to clients across our network. Single borrower concentration risk has been mitigated by active distribution of assets to banks and institutional investors. The WB loan portfolio remains diversified across both geography and industry. There are no significant concentrations within the broad industry classifications of manufacturing; financing, insurance and business services; commerce; or transport, storage and communication. The largest sector exposure is to manufacturing which is spread across many sub-industries. The industry classification below only represents loans and advances to customers. As such, the transport, storage and communication sector does not include the Group s transport leasing business. This business leases aircraft and ships to clients under operating leases. These assets are held on the Group s balance sheet as part of Property, plant and equipment (see note 27 on page 214) and income generated recognised within other operating income. Exposure to bank counterparties at $86.1 billion increased by $17.6 billion compared to 31 December 2012 mainly due to higher reverse repurchase activities in the Americas, UK & Europe. The Group continues to be a net lender in the interbank money markets. Geographic analysis - Group The following tables show loans and advances to customers by industry and by geography split: Other Asia Pacific 2013 Middle East & Other S Asia Americas UK & Europe Hong Kong Singapore Korea India Africa Total $million $million $million $million $million $million $million $million $million Agriculture, forestry and fishing ,734 Construction , ,967 Commerce 5,948 16, , , ,679 43,209 Electricity, gas and water ,481 5,410 Financing, insurance and business services 3, , , ,918 21,939 Governments ,699 Mining and quarrying 1,217 2,605-1, ,819 16,104 Manufacturing 6,891 4,136 3,700 9,399 2,939 2,604 2,086 10,311 42,066 Commercial real estate 4,023 2,959 1,181 1,813 1,311 1, ,327 13,630 Transport, storage and communication 2,312 3, , ,828 14,029 Other ,998 25,154 33,451 6,688 24,248 6,768 14,271 6,077 50, ,785 Portfolio impairment provision (29) (31) (13) (32) (17) (55) (42) (81) (300) Total loans and advances to customers 25,125 33,420 6,675 24,216 6,751 14,216 6,035 50, ,485 Total loans and advances to banks 17,658 4,501 4,192 14, , ,512 86,168 Other Asia Pacific 2012 Middle East & Other S Asia Americas UK & Europe Hong Kong Singapore Korea India Africa Total $million $million $million $million $million $million $million $million $million Agriculture, forestry and fishing ,079 4,394 Construction , ,583 Commerce 4,983 11, , , ,229 33,598 Electricity, gas and water ,723 4,816 Financing, insurance and business services 2,702 2, , , ,149 22,487 Governments ,254 Mining and quarrying 700 1, ,495 14,835 Manufacturing 6,018 3,845 4,182 8,690 2,864 2,893 2,208 8,941 39,641 Commercial real estate 3,524 2,296 1,354 1,413 1,270 1, ,543 Transport, storage and communication 2,400 3, ,411 14,476 Other ,294 21,515 28,321 7,710 22,526 6,827 14,672 6,327 47, ,921 Portfolio impairment provision (24) (21) (16) (26) (19) (94) (41) (59) (300) Total loans and advances to customers 21,491 28,300 7,694 22,500 6,808 14,578 6,286 46, ,621 Total loans and advances to banks 19,356 6,205 4,633 8, , ,122 68,

200 Financial risk management continued Wholesale Banking loan portfolio continued Geographic analysis - Company 2013 Singapore Other Asia Pacific India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Agriculture, forestry and fishing ,040 Construction , ,835 Commerce 16, , ,753 32,609 Electricity, gas and water ,481 4,026 Financing, insurance and business services 854 1, , ,847 13,953 Governments ,426 Mining and quarrying 2, ,819 14,250 Manufacturing 4,136 1,503 2,864 1, ,227 21,011 Commercial real estate 2, ,234 1,006-1,327 6,883 Transport, storage and communication 3, ,360 9,536 Other ,367 Wholesale Banking 33,451 5,900 6,508 13,361 1,146 49, ,936 Portfolio impairment provision (30) (9) (15) (45) (2) (81) (182) Total loans and advances to customers 33,421 5,891 6,493 13,316 1,144 49, ,754 Total loans and advances to banks 4,451 3, , ,244 52,418 Total Singapore Other Asia Pacific India 2012 Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Agriculture, forestry and fishing ,079 3,809 Construction , ,116 Commerce 11, , ,304 23,810 Electricity, gas and water ,723 3,565 Financing, insurance and business services 2,184 1, , ,074 16,181 Governments ,798 Mining and quarrying 1, ,495 13,546 Manufacturing 3,845 1,426 2,759 2, ,755 19,420 Commercial real estate 2, ,229 1, ,464 Transport, storage and communication 3, ,674 9,643 Other Wholesale Banking 28,321 4,793 6,590 13,648 1,641 46, ,093 Portfolio impairment provision (21) (7) (17) (84) (3) (60) (192) Total loans and advances to customers 28,300 4,786 6,573 13,564 1,638 46, ,901 Total loans and advances to banks 6,205 2, , ,767 38,024 Total

201 Financial risk management continued Wholesale Banking loan portfolio continued Maturity analysis - Group The WB portfolio remains predominantly short-term, with 64 per cent (2012: 62 per cent) of loans and advances having a remaining contractual maturity of one year or less driven by short-dated loans and trade finance transactions primarily within commerce, manufacturing and mining and quarrying. The following tables show the contractual maturity of loans and advances to customers by each principal category of borrowers business or industry. One year or less 2013 One to five years Over five years Total $million $million $million $million Agriculture, forestry and fishing 1, ,734 Construction 2, ,967 Commerce 38,348 4, ,209 Electricity, gas and water 1,587 1,690 2,133 5,410 Financing, insurance and business services 13,343 8, ,939 Governments 1, ,699 Mining and quarrying 8,210 5,993 1,901 16,104 Manufacturing 29,343 10,761 1,962 42,066 Commercial real estate 4,062 8, ,630 Transport, storage and communication 4,953 5,599 3,477 14,029 Other ,998 Wholesale Banking 106,827 48,449 11, ,785 Portfolio impairment provision (300) Total loans and advances to customers 166,485 One year or less 2012 One to five years Over five years Total $million $million $million $million Agriculture, forestry and fishing 3, ,394 Construction 3,159 1, ,583 Commerce 28,941 4, ,598 Electricity, gas and water 1,863 1,043 1,910 4,816 Financing, insurance and business services 13,839 7,581 1,067 22,487 Governments 2, ,254 Mining and quarrying 6,873 5,275 2,687 14,835 Manufacturing 26,629 11,187 1,825 39,641 Commercial real estate 4,180 6, ,543 Transport, storage and communication 3,852 6,951 3,673 14,476 Other ,294 Wholesale Banking 96,194 46,195 12, ,921 Portfolio impairment provision (300) Total loans and advances to customers 154,

202 Financial risk management continued Wholesale Banking loan portfolio continued Maturity Analysis Company The Wholesale Banking portfolio remains predominantly short-term, with 63 per cent (2012: 59 per cent) of loans and advances having a contractual maturity of one year or less. The following tables show the contractual maturity of loans and advances to customers by each principal category of borrowers business or industry. One year or less 2013 One to five years Over five years Total $million $million $million $million Agriculture, forestry and fishing 1, ,040 Construction 1, ,835 Commerce 29,313 2, ,609 Electricity, gas and water 992 1,013 2,021 4,026 Financing, insurance and business services 7,717 5, ,953 Governments 1, ,426 Mining and quarrying 6,689 5,772 1,789 14,250 Manufacturing 13,728 5,935 1,348 21,011 Commercial real estate 1,975 4, ,883 Transport, storage and communication 3,425 3,796 2,315 9,536 Other ,367 Wholesale Banking 68,766 32,173 8, ,936 Portfolio impairment provision (182) 109,754 One year or less 2012 One to five years Over five years Total $million $million $million $million Agriculture, forestry and fishing 2, ,809 Construction 2, ,116 Commerce 20,783 2, ,810 Electricity, gas and water 1, ,885 3,565 Financing, insurance and business services 9,010 6,127 1,044 16,181 Governments 1, ,798 Mining and quarrying 5,853 5,065 2,628 13,546 Manufacturing 11,874 6,431 1,115 19,420 Commercial real estate 1,831 3, ,464 Transport, storage and communication 2,094 4,761 2,788 9,643 Other Wholesale Banking 59,254 31,426 10, ,093 Portfolio impairment provision (192) 100,

203 Financial risk management continued Wholesale Banking loan portfolio continued Credit quality analysis The tables below set out an analysis of the loans to customers and banks between those loans that are neither past due nor impaired, those that are past due but not individually impaired and those that are individually impaired by industry type and by geography. In WB, the overall portfolio quality remains good and 95 per cent of the portfolio is neither past due nor individually impaired. Neither past due nor impaired loans have increased by $12.3 billion in line with portfolio growth, and the growth is primarily concentrated within the commerce and manufacturing sectors and within credit grades 1-5. Loans past due but not individually impaired decreased by $1.2 billion compared to This was primarily due to the renegotiation in 2013 of a small number of exposures which were reported with the days past due category in 2012 within financing, insurance and business services sectors in Hong Kong, the Americas, UK & Europe. No impairment was recognised following these negotiations. Past due exposure in the mining and quarrying sector increased $500 million compared to 2012, the majority of which was in Singapore and concentrated in the 0-30 days past due category. Over 85 per cent of the loans reported in the up to 30 days past due category, including those relating to renegotiated loans, had been cured by the end of January Individually impaired loans increased by $1.1 billion, mainly due to an increase in a small number of exposures in India and Africa and this flowed into higher individual impairment provisions of $343 million. PIP remained flat as a release in MESA of provisions created in 2009 in respect of market uncertainties was offset by increases in Africa, Singapore and Other Asia Pacific regions. Loans to banks remain predominantly high quality with more than 99 per cent of the portfolio held as neither past due nor individually impaired. Group Neither past due nor individually impaired Past due but not individually impaired Individually impaired loans Total Neither past due nor individually impaired Past due but not individually impaired Individually impaired loans $million $million $million $million $million $million $million $million Agriculture, forestry and fishing 2, ,917 4, ,423 Construction 3, ,035 4, ,655 Commerce 42, ,897 33, ,266 Electricity, gas and water 5, ,420 4, ,824 Financing, insurance and business services 20, ,259 22,185 18,897 2,616 1,139 22,652 Governments 1, ,699 3, ,254 Mining and quarrying 14,918 1, ,150 14, ,844 Manufacturing 40, ,731 42,666 38, ,176 40,202 Commercial real estate 13, ,661 11, ,567 Transport, storage and communication 13, ,225 14, ,673 Other 1, ,037 1, ,325 Wholesale Banking 160,025 3,381 5, , ,679 4,606 4, ,685 Individual impairment provisions (2,107) (1,764) Portfolio impairment provision (300) (300) Total loans and advances to customers 166, ,621 Total Loans and advances to banks 86, ,270 68, ,675 Individual impairment provisions (100) (103) Portfolio impairment provision (2) (2) Total loans and advances to banks 86,168 68,

204 Financial risk management continued Wholesale Banking loan portfolio continued Credit quality analysis - Company The following table sets out the impairment provision on loans and advances as at 31 December by each principal category of borrowers business or industry: Neither past due nor individually impaired Past due but not individually impaired Individually impaired loans Total Neither past due nor individually impaired Past due but not individually impaired Individually impaired loans $million $million $million $million $million $million $million $million Agriculture, forestry and fishing 1, ,216 3, ,828 Construction 2, ,883 2, ,163 Commerce 31, ,046 23, ,235 Electricity, gas and water 3, ,026 3, ,571 Total Financing, insurance and business services 12, ,202 14,192 12,814 2,469 1,058 16,341 Governments 1, ,426 1, ,798 Mining and quarrying 13,084 1, ,283 13, ,545 Manufacturing 19, ,324 18, ,713 Commercial real estate 6, ,885 5, ,470 Transport, storage and communication 8, ,701 9, ,822 Other 1, , Wholesale Banking 103,981 3,063 4, ,365 95,272 3,579 3, ,234 Individual impairment provisions (1,429) (1,141) Portfolio impairment provision (182) (192) Total loans and advances to customers 109, ,901 Loans and advances to banks 52, ,441 37, ,049 Individual impairment provisions (22) (24) Portfolio impairment provision (1) (1) Total loans and advances to banks 52,418 38,

205 Financial risk management continued Wholesale Banking loan portfolio continued Loans to customers The tables below set out an analysis of the loan to customers and banks between those loans that are neither past due nor impaired, those that are past due but not individually impaired and those that are individually impaired by geography Group Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Neither past due nor individually impaired 24,982 32,586 6,606 23,798 5,923 12,607 5,614 47, ,025 Past due but not individually impaired loans ,597 3,381 Individually impaired loans , ,486 Individual impairment provisions (38) (9) (136) (277) (324) (1,042) (260) (21) (2,107) Portfolio impairment provision (29) (31) (13) (32) (17) (55) (42) (81) (300) Total loans and advances to customers 25,125 33,420 6,675 24,216 6,751 14,216 6,035 50, ,485 Total Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Neither past due nor individually impaired 20,674 28,036 7,554 22,171 6,186 12,697 6,212 44, ,679 Past due but not individually impaired loans ,779 4,606 Individually impaired loans , ,400 Individual impairment provisions (50) (74) (105) (219) (241) (1,008) (37) (30) (1,764) Portfolio impairment provision (24) (21) (16) (26) (19) (94) (41) (59) (300) Total loans and advances to customers 21,491 28,300 7,694 22,500 6,808 14,578 6,286 46, ,621 Company Singapore Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Neither past due nor individually impaired 32,587 5,790 5,666 11, , ,981 Past due but not individually impaired loans ,597 3,063 Individually impaired loans , ,321 Individual impairment provisions (10) (141) (320) (724) (163) (71) (1,429) Portfolio impairment provision (30) (9) (15) (45) (2) (81) (182) Total loans and advances to customers 33,421 5,891 6,493 13,316 1,144 49, ,754 Singapore Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Neither past due nor individually impaired 28,036 4,705 5,950 11,722 1,632 43,227 95,272 Past due but not individually impaired loans ,779 3,579 Individually impaired loans , ,383 Individual impairment provisions (74) (112) (241) (680) (3) (31) (1,141) Portfolio impairment provision (21) (7) (17) (84) (3) (60) (192) Total loans and advances to customers 28,300 4,786 6,573 13,564 1,638 46, ,901 Total Total Total

206 Financial risk management continued Wholesale Banking loan portfolio continued Loans to banks The table below sets out an analysis of the loans and advances to banks between those loans that are neither past due nor impaired, those that are past due but not individually impaired and those that are individually impaired by geography. Group Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Neither past due nor individually impaired 17,648 4,488 4,192 14, , ,498 86,046 Past due but not individually impaired loans Individually impaired loans Individual impairment provisions (78) (22) (100) Portfolio Impairment provision (1) - (1) - - (2) Total loans and advances to banks 17,658 4,501 4,192 14, , ,512 86,168 Total Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Neither past due nor individually impaired 19,349 6,205 4,633 8, , ,104 68,363 Past due but not individually impaired loans Individually impaired loans Individual impairment provisions (78) (25) (103) Portfolio Impairment provision (1) - (1) - - (2) Total loans and advances to banks 19,356 6,205 4,633 8, , ,122 68,570 Company Singapore Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Neither past due nor individually impaired 4,438 3, , ,232 52,393 Past due but not individually impaired loans Individually impaired loans Individual impairment provisions (22) (22) Portfolio Impairment provision (1) (1) Total loans and advances to banks 4,451 3, , ,244 52,418 Total Total Singapore Other Asia Pacific India 2012 Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Neither past due nor individually impaired 6,205 2, , ,749 37,909 Past due but not individually impaired loans Individually impaired loans Individual impairment provisions (24) (24) Portfolio impairment provision (1) - - (1) Total loans and advances to banks 6,205 2, , ,767 38,024 Total

207 Financial risk management continued Wholesale Banking loan portfolio continued Credit risk mitigation Collateral held against WB exposures amounted to $63.4 billion (December 2012: $51.6 billion). This represents the fair value of collateral adjusted in accordance with our risk mitigation policy (page 36) and for the effects of over collateralisation. The unadjusted current market value of collateral without over collateralisation is $197 billion at 31 December 2013 (2012: $186 billion). Our underwriting standards encourage taking specific charges on assets and we consistently seek high quality, investment grade secured collateral. 49 per cent of collateral held is comprised of physical assets or is property based, with the remainder held largely in investment securities. Non-tangible collateral such as guarantees and letters of credit may also be held against corporate exposures although the financial effect of this type of collateral is less significant in terms of recoveries. However this type of collateral is considered when determining probability of default and other credit related factors. The increase in collateral compared to 2012 is broadly in line with growth in the loan portfolio. The proportion of highly rated debt securities of 15.3 per cent on collateral increased compared to 2012 due to higher levels of reverse repo transactions. The following table provides an analysis of the types of collateral held against WB loan exposures. Group $million $million Cash 12,278 9,039 Property 15,125 13,141 Debt securities AAA 45 4 AA- to AA+ 9,652 3,390 BBB- to BBB+ 2, Lower than BBB ,313 Unrated 5,004 6,151 18,351 11,571 Other (asset based) 17,636 17,843 Total value of collateral 63,390 51,594 Company $million $million Cash 10,637 6,439 Property 8,563 7,376 Debt securities AAA 1,411 1,537 AA- to AA+ 6,886 3,097 BBB- to BBB+ 2, Lower than BBB ,285 Unrated 4,084 5,063 15,699 11,307 Other (asset based) 10,489 11,819 Total value of collateral 45,388 36,

208 Financial risk management continued Wholesale Banking loan portfolio continued Commercial real estate (CRE) The Group has lending to commercial real estate (CRE) counterparties of $13,630 million (31 December 2012: $11,543 million). Of this exposure $6,758 million is to counterparties where the source of repayment is substantially derived from rental or sale of real estate and is secured by real estate collateral. The remaining CRE exposure comprises working capital loans to real estate corporates, exposure with non-property collateral, unsecured exposure and exposure to real estate entity of diversified conglomerate. The following table presents a geographical analysis of the LTV ratios for such loans. The average LTV of the exposure remains low. Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe % % % % % % % % % Less than 50 per cent per cent to 59 per cent per cent to 69 per cent per cent to 79 per cent per cent to 89 per cent per cent to 99 per cent per cent and greater Average Portfolio loan to value Loans ($million) 1,165 1, ,072 1, ,758 Total Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe % % % % % % % % % Less than 50 per cent per cent to 59 per cent per cent to 69 per cent per cent to 79 per cent per cent to 89 per cent per cent to 99 per cent per cent and greater Average Portfolio loan to value Loans ($million) 779 1, ,263 1, ,584 Total

209 Financial risk management continued Wholesale Banking loan portfolio continued Commercial real estate (CRE) The Company has exposure to CRE of $6,883 million (31 December 2012: $5,464 million). The following table presents a geographical analysis of the loan to value ratios for such loans. Table to be updated for new segmental presentation. Singapore Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe Total % % % % % % % Less than 50 per cent per cent to 59 per cent per cent to 69 per cent per cent to 79 per cent per cent to 89 per cent per cent to 99 per cent per cent and greater Average Portfolio loan to value Loans ($million) 1, , ,081 Singapore Other Asia Pacific India 2012 Middle East & Other S Asia Africa Americas UK & Europe Total % % % % % % % Less than 50 per cent per cent to 59 per cent per cent to 69 per cent per cent to 79 per cent per cent to 89 per cent per cent to 99 per cent per cent and greater Average Portfolio loan to value Loans ($million) 1, ,263 1, ,

210 Financial risk management continued Wholesale Banking loan portfolio continued Loan impairment The individual impairment charge increased by $26 million or 5 per cent compared with 31 December 2012, primarily due to higher provisions in India and Africa, relating to a small number of exposures. Increase in portfolio impairment provision was offset by release in MESA, due to an improvement in the credit environment. The table below sets out the net impairment charge for WB loans and advances and other credit risk provisions by geography. Group Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Gross impairment charge Recoveries/provisions no longer required (18) (2) (5) (3) (3) (14) (2) (4) (51) Net individual impairment charge/(credit) (11) Portfolio impairment provision charge / (release) 6 10 (4) 10 7 (40) Net loan impairment charge/(release) (5) Other credit risk provisions Net impairment charge (4) Total Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Gross impairment charge Recoveries/provisions no longer required (5) - (9) (8) (7) (1) (2) (8) (40) Net individual impairment charge Portfolio impairment provision charge/ (release) (3) 2 (10) 5 (45) (3) (25) Net loan impairment charge Other credit risk provisions (1) (2) Net impairment charge Total

211 Financial risk management continued Wholesale Banking loan portfolio continued The table below sets out the net impairment charge by geography for Wholesale Banking: Company Singapore Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million Gross impairment charge Recoveries/provisions no longer required (2) - (3) (9) - (3) (17) Net individual impairment charge/(credit) (1) Portfolio impairment provision charge/(release) (1) (1) (19) (6) Net impairment charge Other credit risk provisions Total impairment Singapore Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Gross impairment charge Recoveries/provisions no longer required - - (2) (2) - (8) (12) Net individual impairment charge Portfolio impairment provision charge/(release) (34) (26) Net loan impairment charge/(release) (18) 364 Other credit risk provisions Total impairment (18) 364 Total

212 Financial risk management continued Wholesale Banking loan portfolio continued Impairment provisions on loans and advances Group The following table sets out the impairment provision on loans and advances by each principal category of borrowers business or industry: Impairment provision held as at 1 January 2013 Net impairment charge/(release) 2013 Amounts written off/ Impairment other provision held movements as at 31 December $million $million $million $million Agriculture, forestry and fishing (24) 183 Construction (17) 68 Commerce Electricity, gas and water 8 8 (6) 10 Financing, insurance and business services Mining and quarrying Manufacturing (209) 600 Commercial real estate 24 9 (2) 31 Transport, storage and communication (25) 196 Other (5) 39 Individual impairment provision against loans and advances to customers 1, (230) 2,107 Portfolio impairment provision against loans and advances to customers (6) 300 Total impairment provisions on loans and advances to customers 2, (236) 2,407 Individual impairment provision against loans and advances to banks 103 (1) (2) 100 Portfolio impairment provision against loans and advances to banks Total impairment provisions on loans and advances to banks 105 (1) (2) 102 Impairment provision held as at 1 January 2012 Net impairment charge/(release) 2012 Amounts written off/ other movements 2012 Impairment provision held as at 31 December 2012 $million $million $million $million Agriculture, forestry and fishing Construction (12) 72 Commerce Electricity, gas and water Financing, insurance and business services (120) 165 Mining and quarrying Manufacturing (82) 561 Commercial real estate Transport, storage and communication (5) 197 Other 29 4 (2) 31 Individual impairment provision against loans and advances to customers 1, (138) 1,764 Portfolio impairment provision against loans and advances to customers 321 (23) Total impairment provisions on loans and advances to customers 1, (136) 2,064 Individual impairment provision against loans and advances to banks Portfolio impairment provision against loans and advances to banks 2 (2) 2 2 Total impairment provisions on loans and advances to banks

213 Financial risk management continued Wholesale Banking loan portfolio continued Impairment provisions on loans and advances Company The following table sets out the impairment provision on loans and advances by each principal category of borrowers business or industry: Impairment provision held as at 1 January 2013 Net impairment charge/(release) 2013 Amounts written off/ Impairment other provision held movements as at 31 December $million $million $million $million Agriculture, forestry and fishing (20) 176 Construction 47 6 (5) 48 Commerce (17) 437 Electricity, gas and water 6 - (6) - Financing, insurance and business services Mining and quarrying - 36 (3) 33 Manufacturing (148) 313 Commercial real estate 6 (2) (2) 2 Transport, storage and communication (21) 165 Other Individual impairment provision against loans and advances to customers 1, (152) 1,429 Portfolio impairment provision against loans and advances to customers 192 (6) (4) 182 Total impairment provisions on loans and advances to customers 1, (156) 1,611 Individual impairment provision against loans and advances to banks 24 - (2) 22 Portfolio impairment provision against loans and advances to banks Total impairment provisions on loans and advances to banks 25 - (2) 23 Impairment provision held as at 1 January 2012 Net impairment charge /(release) 2012 Amounts written off/ other movements 2012 Impairment provision held as at 31 December 2012 $million $million $million $million Agriculture, forestry and fishing Construction 44 5 (2) 47 Commerce Electricity, gas and water Financing, insurance and business services (82) 160 Mining and quarrying Manufacturing (234) 293 Commercial real estate 10 - (4) 6 Transport, storage and communication Other Individual impairment provision against loans and advances to customers (81) 1,141 Portfolio impairment provision against loans and advances to customers 216 (25) Total impairment provisions on loans and advances to customers 1, (80) 1,333 Individual impairment provision against loans and advances to banks 4 24 (4) 24 Portfolio impairment provision against loans and advances to banks Total impairment provisions on loans and advances to banks 5 24 (4)

214 Financial risk management continued Wholesale Banking loan portfolio continued Non-performing loans Gross non-performing loans in WB, the definition of which is set out on page 48, increased by $933 million, or 22 per cent, since December These increases were primarily driven by a small number of large exposures in India and in Africa and the Americas, UK & Europe regions. The following tables set out the total non-performing loans to banks and customers for WB on the basis of the geographic regions to which the exposure relates to rather than the booking location: Group Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Loans and advances Gross non-performing , ,205 Individual impairment provision 1 (38) (9) (136) (355) (324) (1,028) (260) (43) (2,193) Non-performing loans net of individual impairment provision ,012 Portfolio impairment provision (302) Net non-performing loans and advances 2,710 Cover ratio 48% 1 The difference to total individual impairment provision at 31 December 2013 reflects provisions against restructured loans that are not included within nonperforming loans as they have been performing for 180 days in line with the definition provided on page 48 Total Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million $million $million Loans and advances Gross non-performing , ,272 Individual impairment provision 1 (50) (14) (105) (304) (240) (1,061) (37) (55) (1,866) Non-performing loans net of individual impairment provision , ,406 Portfolio impairment provision (302) Net non-performing loans and advances 2,104 Cover ratio 51% 1 The difference to total individual impairment provision at 31 December 2012 reflect provisions against restructured loans that are not included within nonperforming loans as they have been performing for 180 days in line with the definition provided on page 48 Total

215 Financial risk management continued Wholesale Banking loan portfolio continued Non-performing loans Company Singapore Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe Total $million $million $million $million $million $million $million Loans and advances Gross non-performing , ,853 Individual impairment provision 1 (10) (141) (320) (710) (163) (93) (1,437) Non-performing loans net of individual impairment provision ,416 Portfolio impairment provision (183) Net non-performing loans and advances 2,233 Cover ratio 42% Singapore Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $million $million $million $million $million $million $million Loans and advances Gross non-performing , ,101 Individual impairment provision 1 (74) (79) (240) (713) (3) (55) (1,164) Non-performing loans net of individual impairment provisions , ,937 Portfolio impairment provision (193) Net non-performing loans and advances 1,744 Cover ratio 44% Total 1 The difference to total individual impairment provision reflect provisions against restructured loans that are not included within non-performing loans as they have been performing for 180 days in line with the definition provided on page

216 Financial risk management continued Debt securities and treasury bills Debt securities and treasury bills are analysed as follows: Group Net impaired securities Debt securities Treasury bills Total Debt securities Treasury bills $million $million $million $million $million $million Impaired securities Impairment (204) - (204) (159) - (159) Total Securities neither past due nor impaired AAA 23,771 4,456 28,227 20,755 6,516 27,271 AA- to AA+ 23,267 19,228 42,495 20,232 6,594 26,826 A- to A+ 21,392 1,087 22,479 23,570 10,694 34,264 BBB- to BBB+ 5,913 4,238 10,151 10,122 3,818 13,940 Lower than BBB- 3, ,189 3, ,529 Unrated 8,101 1,500 9,601 6,471 1,571 8,042 Of which: Assets at fair value 1 85,735 31, ,142 84,177 29, ,872 85,920 31, ,327 84,422 29, ,117 Trading 12,407 5,161 17,568 14,882 2,955 17,837 Designated at fair value Available-for-sale 70,545 26,246 96,791 65,356 26,740 92,096 83,244 31, ,651 80,571 29, ,266 Assets at amortised cost 1 Loans and receivables 2,676-2,676 3,851-3,851 85,920 31, ,327 84,422 29, ,117 1 See note 15, 16 and 21 of the financial statements for further details Net impaired securities reduced by $60 million compared to 2012 primarily due to increased provisions against a bond exposure in India arising from credit concerns around the issuer. The above table analyses debt securities and treasury bills that are neither past due nor impaired by external credit rating. The standard credit ratings used by the Group are those used by Standard & Poor s or their equivalent. Debt securities held that have a short-term rating are reported against the long-term rating of the issuer. For securities that are unrated, the Group applies an internal credit rating as described under credit rating and measurements on page 35. Debt securities in the AAA rating category increased by $3.0 billion to $23.8 billion in 2013 mainly due to an increase higher quality corporate bonds in Hong Kong and Singapore. This was offset by low level of AAA trading business as funds were deployed into higher quality assets in Singapore and as part of the restructuring of the balance sheet in Korea. Unrated securities primarily relate to corporate issuers. Using internal credit ratings $9,275 million (2012: $7,208 million) of these securities are considered to be equivalent to investment grade

217 Financial risk management continued Debt securities and treasury bills Continued Company Net impaired securities Debt securities Treasury bills Total Debt securities Treasury bills $million $million $million $million $million $million Impaired securities Impairment provisions (121) - (121) (128) - (128) Securities neither past due nor impaired AAA 20,350 2,907 23,257 17,800 6,289 24,089 AA- to AA+ 7,472 1,538 9,010 7, ,726 A- to A+ 3,200-3,200 3,423-3,423 BBB- to BBB+ 4,850 2,977 7,827 7,389 2,690 10,079 Lower than BBB- 2, ,450 1, ,884 Unrated 5, ,153 4, ,294 43,584 8,313 51,897 42,969 9,526 52,495 Total Of which: Assets at fair value 1 43,586 8,313 51,899 42,978 9,526 52,504 Trading 6,543 2,276 8,819 8, ,646 Available-for-sale 35,242 6,037 41,279 31,782 8,805 40,587 Assets at amortised cost 1 41,785 8,313 50,098 40,707 9,526 50,233 Loans and receivables 1,801-1,801 2,271-2,271 1,801-1,801 2,271-2,271 43,586 8,313 51,899 42,978 9,526 52,504 1 See note 15, 16 and 21 of the financial statements for further details Using internal credit ratings, $5,684 million (2012: $4,627 million) of these securities are considered to be investment grade

218 Financial risk management continued Asset backed securities Total exposures to asset backed securities Percentage of notional value of Notional Carrying value Fair value 1 Percentage of notional value of Notional Carrying value Fair value 1 portfolio $million $million $million portfolio $million $million $million Residential Mortgage Backed Securities (RMBS) 46% 3,059 3,052 3,045 46% 2,160 2,114 2,120 Collateralised Debt Obligations (CDOs) 3% % Commercial Mortgage Backed Securities (CMBS) 5% % Other asset backed securities (Other ABS) 46% 3,126 3,081 3,124 39% 1,869 1,847 1, % 6,729 6,556 6, % 4,767 4,519 4,551 Of which included within: Financial assets held at fair value through profit or loss 2% % Investment securities - available-for-sale 79% 5,295 5,202 5,202 61% 2,905 2,786 2,786 Investment securities - loans and receivables 19% 1,276 1,196 1,234 35% 1,672 1,542 1,574 Fair value reflects the value of the entire portfolio, including assets redesignated to loans and receivables 100% 6,729 6,556 6, % 4,767 4,519 4,551 The carrying value of ABS represents 1 per cent (2012: 0.7 per cent) of our total assets. The Group has an existing portfolio of ABS which it reclassified from trading and available-for-sale to loans and receivables with effect from 1 July No assets have been reclassified since 2008.This portfolio has been gradually managed down since The carrying value and fair value for this part of the portfolio were $614 million and $647 million respectively as at the end of Note 15 to the financial statements provide details of the remaining balance of those assets reclassified in The Group has also extended its investment to a limited amount of trading in ABS and has also acquired an additional $4.8 billion of ABS during 2013 for liquidity reasons. This is classified as available-for-sale and primarily related to high quality RMBS assets with an average credit grade of AAA. The credit quality of the asset backed securities portfolio remains strong. With the exception of those securities subject to an impairment charge, over 95 per cent of the overall portfolio is rated A- or better, and 80 per cent of the overall portfolio is rated as AAA. The portfolio is broadly diversified across asset classes and geographies, with an average credit grade of AA. The decline in the bank s legacy portfolios and significant increase in asset purchases for liquidity reasons in the available-for-sale book makes the fair value of the entire portfolio similar to the carrying value. Financial statement impact of asset backed securities Availablefor-sale Loans and receivables Total $million $million $million 31 December 2013 Credit to available-for-sale reserves Credit to the profit and loss account (1) - (1) 31 December 2012 Charge to available-for-sale reserves (3) - (3) Charge to the profit and loss account

219 Financial risk management continued Selected European country exposures Group The following tables summarise the Group s direct exposure (both on and off balance sheet) to certain specific countries within the eurozone that have been identified on the basis of their higher bond yields, higher sovereign debt to GDP ratio and external credit ratings compared with the rest of the eurozone. Total gross exposure represents the amount outstanding on the balance sheet (including any accrued interest but before provisions) and positive mark-to-market amounts on derivatives before netting. To the extent gross exposure does not represent the maximum exposure to loss this is disclosed separately. Exposures are assigned to a country based on the country of incorporation of the counterparty as at 31 December The Group has no direct sovereign exposure (as defined by the EBA) to the eurozone countries of GIIPS and only $0.5 billion direct sovereign exposure to other eurozone countries. The Group s non-sovereign exposure to GIIPS is $2.4 billion ($2.0 billion after collateral and netting) and $37.7 billion ($22 billion after collateral and netting) to the remainder of the eurozone. This exposure primarily consists of balances with corporates. The substantial majority of the Group s total gross GIIPS exposure has a tenor of less than five years, with approximately 32 per cent having a tenor of less than one year. The Group has no direct sovereign exposure and $260 million (2012: $263 million) of non-sovereign exposure (after collateral and netting) to Cyprus. The exit of one or more countries from the eurozone or ultimately its dissolution could potentially lead to significant market dislocation, the extent of which is difficult to predict. Any such exit or dissolution, and the redenomination of formerly eurodenominated rights and obligations in replacement national currencies would cause significant uncertainty in any exiting country, whether sovereign or otherwise. Such events are also likely to be accompanied by the imposition of capital, exchange and similar controls. While the Group has limited eurozone exposure as disclosed above, the Group s earnings could be impacted by the general market disruption if such events should occur. We monitor the situation closely and we have prepared contingency plans to respond to a range of potential scenarios, including the possibility of currency redenomination. Local assets and liability positions are carefully monitored by in-country asset and liability and risk committees with appropriate oversight by GALCO and GRC at the Group level. Country Greece Ireland Italy Portugal Spain Total As at 31 December 2013 $million $million $million $million $million $million Direct sovereign exposure Banks ,121 Other financial institutions Other corporate Total gross exposure 15 1, , Direct sovereign exposure Banks - - (70) - (167) (237) Other financial institutions - (192) (5) - - (197) Other corporate (1) (16) (1) - (3) (21) Total collateral/netting (1) (208) (76) - (170) (455) Direct sovereign exposure Banks Other financial institutions Other corporate Total net exposure at 31 December ,989 Total net exposure at 31 December , ,272 1 This represents a single exposure which is part of a wider structured finance transaction and is unaffected by Irish economic risk

220 Financial risk management continued Selected European country exposures Company The Company has no direct sovereign exposure to GIIPS and only $0.3 billion direct sovereign exposure to other eurozone countries. The Company s direct non-sovereign exposures to GIIPS is $3.3 billion ($2.9 billion after collateral and netting). Non-sovereign exposure to other eurozone countries is $0.3 billion after collateral and netting. Country Greece Ireland Italy Portugal Spain Total As at 31 December 2013 $million $million $million $million $million $million Direct sovereign exposure Banks Other financial institutions Other corporate 14 1, ,458 Total gross exposure 14 2, , Direct sovereign exposure Banks - - (69) - (167) (236) Other financial institutions - (191) (5) - - (196) Other corporate - (12) - - (4) (16) Total collateral/netting - (203) (74) - (171) (448) Direct sovereign exposure Banks Other financial institutions Other corporate 14 1, ,442 Total net exposure at 31 December , ,875 Total net exposure at 31 December , ,985 1 This represents a single exposure which is part of a wider structured finance transaction and is unaffected by Irish sovereign risk

221 Financial risk management continued Selected European country exposures continued The Group s exposure to GIIPS as at 31 December 2013 is analysed by financial asset as follows: Country Greece Ireland Italy Portugal Spain Total As at 31 December 2013 $million $million $million $million $million $million Loans and advances Loans and receivables Held at fair value through profit or loss Total gross loans and advances Collateral held against loans and advances (1) (4) (53) - (2) (60) Total net loans and advances Debt securities Trading Designated at fair value Available-for-sale Loans and receivables Total gross debt securities Collateral held against debt securities Total net debt securities Derivatives Gross exposure Collateral/netting 1 - (204) (23) - (168) (395) Total derivatives Contingent liabilities and commitments ,508 Total net exposure (on and off balance sheet) ,989 Total balance sheet net exposure At 31 December 2012 Net loans and advances Net debt securities Net derivatives Contingent liabilities and commitments 9 1, ,650 Total net exposure (on and off balance sheet) , ,272 1 Based on International Swaps and Derivatives Association netting

222 Financial risk management continued Selected European country exposures continued The Company s exposure to GIIPS as at 31 December 2013 is analysed by financial asset as follows: Country Greece Ireland Italy Portugal Spain Total As at 31 December 2013 $million $million $million $million $million $million Loans and advances Loans and receivables 8 1, ,551 Held at fair value through profit or loss Total gross loans and advances 8 1, ,551 Collateral held against loans and advances - - (50) - (3) (53) Total net loans and advances 8 1, ,498 Debt securities Trading Available-for-sale Loans and receivables Total gross debt securities Collateral held against debt securities Total net debt securities Derivatives Gross exposure Collateral/netting 1 (0) (203) (24) - (168) (395) Total derivatives Contingent liabilities and commitments ,311 Total net exposure (on and off balance sheet) , ,875 Total balance sheet net exposure 8 1, , At 31 December 2012 Net loans and advances Net debt securities Net derivatives Contingent liabilities and commitments 9 1, ,471 Total net exposure (on and off balance sheet) , ,985 1 Based on International Swaps and Derivatives Association netting

223 Financial risk management continued Selected European country exposures continued Other selected eurozone countries - Group A summary analysis of the Group s exposure to France, Germany, the Netherlands and Luxembourg is also provided as these countries are considered to have significant sovereign debt exposure to GIIPS. France Germany Netherlands Luxembourg Total $million $million $million $million $million Direct sovereign exposure Banks 2,911 4,303 1,695 1,122 10,031 Other financial institutions Other corporate 1, , ,817 Total net exposure at 31 December ,516 5,390 7,735 1,916 19,557 Total net exposure at 31 December ,738 12,809 12,114 2,594 31,255 The Group's lending to these selected eurozone countries primarily takes the form of repurchase agreements, inter-bank loans and bonds. The substantial majority of the Group's total gross exposures to these selected countries have a tenor of less than three years, with over 57 per cent having a tenor of less than one year. The Group s exposure in Germany is primarily with the central bank. Other than all these specifically identified countries, the Group s residual net exposure to the eurozone is $3 billion, which primarily comprises bonds and export structured financing to banks and corporates. Other selected eurozone countries - Company A summary analysis of the Company's exposure to France, Germany, the Netherlands and Luxembourg is also provided as these countries are considered to have significant sovereign debt exposure to GIIPS. France Germany Netherlands Luxembourg Total $million $million $million $million $million Direct sovereign exposure Banks 1,931 4, ,122 8,104 Other financial institutions Other corporate , ,004 Total net exposure at 31 December ,909 5,003 5,851 1,817 15,580 Total net exposure at 31 December ,378 12,251 10,178 2,502 27,309 This exposure primarily consists of balances with corporates. The substantial majority of total gross GIIPS exposure has a tenor of more than five years, with approximately 21 per cent having a tenor of less than one year

224 Financial risk management continued Country cross-border risk - Group Country cross-border risk is the risk that we will be unable to obtain payment from our customers or third parties on their contractual obligations as a result of certain actions taken by foreign governments, chiefly relating to convertibility and transferability of foreign currency. The GRC is responsible for our country cross-border risk limits and delegates the setting and management of country limits to the Group Country Risk function. The business and country chief executive officers manage exposures within these limits and policies. Countries designated as higher risk are subject to increased central monitoring. Cross-border assets comprise loans and advances, interest-bearing deposits with other banks, trade and other bills, acceptances, amounts receivable under finance leases, derivatives, certificates of deposit and other negotiable paper, investment securities and formal commitments where the counterparty is resident in a country other than where the assets are recorded. Cross-border assets also include exposures to local residents denominated in currencies other than the local currency. Cross-border exposure also includes the value of commodity, aircraft and shipping assets owned by the Group that are held in a given country. The profile of our country cross-border exposures greater than one per cent of total assets as at 31 December 2013 remained consistent with our strategic focus on core franchise countries, and with the scale of the larger markets that we operate in. Changes in the pace of economic activity had an impact on growth of cross-border exposure for certain territories. Steady progress in the internationalisation of the renminbi continues to present opportunities, and contributed to the growth in cross-border exposure to China. Increased country cross-border exposure to China and Hong Kong also reflected an expansion of our corporate client base, increased trade finance activity and transactions with local and foreign banks in these markets. India remains a core territory for the Group where our competitive advantage positions us to offer US dollar facilities in the domestic market, and to facilitate overseas investment and trade flows supported by parent companies in India. Reported cross-border exposure to Korea and Singapore reflects an emphasis on trade finance and short-term lending. Cross-border exposure to the UAE decreased slightly during 2013, due to a decrease in trade financing transactions and longer term exposures arising from financial markets activity. Malaysia benefited from an increase in trade finance activities amidst rising intra-region trade flows with ASEAN member countries, China, India and Africa. Higher exposures in this market are also representative of an expanded corporate customer base and interbank money market positions booked in the United Kingdom and Singapore. Growth in underlying cross-border business activity in Indonesia was attributable to an expansion of the corporate client base in Indonesia and continued growth in corporate finance assets. Since 30 June 2013, in line with a change in accounting treatment, the country cross-border exposure to Indonesia arising from Permata, a joint venture in which the Group holds per cent, is now counted at the value of the Group s equity in the joint venture. The increase in exposure to Brazil is attributable to trade and investment flows with our core markets. Cross-border exposure to countries in which we do not have a major presence predominantly relates to short-dated money market treasury activities, which can change significantly from period to period. Exposure also represents global corporate business for customers with interests in our footprint. This explains our significant exposure in the US, Switzerland and Australia. The table below, which is based on our internal cross-border country risk reporting requirements, shows cross-border exposures that exceed one per cent of total assets. Less than one year More than one year Total Less than One year More than one year $million $million $million $million $million $million China 32,220 14,449 46,669 23,809 11,783 35,592 India 12,566 18,295 30,861 12,230 18,200 30,430 US 19,001 7,287 26,288 22,485 6,730 29,215 Hong Kong 21,164 8,210 29,374 18,096 8,458 26,554 Singapore 19,328 5,749 25,077 16,561 5,508 22,069 United Arab Emirates 6,281 10,997 17,278 6,580 11,293 17,873 Korea 9,093 7,415 16,508 9,696 6,693 16,389 Switzerland 5,770 3,006 8,776 5,050 4,983 10,033 Indonesia 1 3,959 4,958 8,917 4,094 4,410 8,504 Australia 1,943 5,919 7,862 1,456 4,189 5,645 Brazil 6,175 2,002 8,177 4,157 1,613 5,770 Malaysia 3,878 3,396 7,274 2,255 2,111 4,366 1 Prior year has been restated to reflect the change in accounting treatment of cross-border exposure to Indonesia arising from Permata Total

225 Financial risk management continued Market risk We recognise market risk as the potential for loss of earnings or economic value due to adverse changes in financial market rates or prices. Our exposure to market risk arises principally from customer-driven transactions. The objective of our market risk policies and processes is to obtain the best balance of risk and return whilst meeting customers requirements. The primary categories of market risk for Standard Chartered are: Interest rate risk: arising from changes in yield curves, credit spreads and implied volatilities on interest rate options; Currency exchange rate risk: arising from changes in exchange rates and implied volatilities on foreign exchange options; Commodity price risk: arising from changes in commodity prices and commodity option implied volatilities; covering energy, precious metals, base metals and agriculture; Equity price risk: arising from changes in the prices of equities, equity indices, equity baskets and implied volatilities on related options. Market risk governance The GRC approves our market risk appetite taking account of market volatility, the range of products and asset classes, business volumes and transaction sizes. The Group Market Risk Committee (GMRC), under authority delegated by the GRC, is responsible for setting VaR and stress loss triggers for market risk within our risk appetite. The GMRC is also responsible for policies and other standards for the control of market risk and overseeing their effective implementation. These policies cover both trading and non-trading books of the Group. Group Market Risk (GMR) approves the limits within delegated authorities and monitors exposures against these limits. Additional limits are placed on specific instruments and position concentrations where appropriate. Sensitivity measures are used in addition to VaR as risk management tools. For example, interest rate sensitivity is measured in terms of exposure to a one basis point increase in yields, whereas foreign exchange, commodity and equity sensitivities are measured in terms of the underlying values or amounts involved. Option risks are controlled through revaluation limits on underlying price and volatility shifts, limits on volatility risk and other variables that determine the option s value. Value at Risk We measure the risk of losses arising from future potential adverse movements in market rates, prices and volatilities using a VaR methodology. VaR, in general, is a quantitative measure of market risk that applies recent historical market conditions to estimate the potential future loss in market value that will not be exceeded in a set time period at a set statistical confidence level. VaR provides a consistent measure that can be applied across trading businesses and products over time and can be set against actual daily trading profit and loss outcome. VaR is calculated for expected movements over a minimum of one business day and to a confidence level of 97.5 per cent. This confidence level suggests that potential daily losses, in excess of the VaR measure, are likely to be experienced six times per year. We apply two VaR methodologies: Historical simulation: involves the revaluation of all existing positions to reflect the effect of historically observed changes in market risk factors on the valuation of the current portfolio. This approach is applied for general market risk factors and from the fourth quarter of 2012 has been extended to cover also the majority of specific (credit spread) risk VaR. Monte Carlo simulation: this methodology is similar to historical simulation but with considerably more input risk factor observations. These are generated by random sampling techniques, but the results retain the essential variability and correlations of historically observed risk factor changes. This approach is now applied for some of the specific (credit spread) risk VaR in relation to idiosyncratic exposures in credit markets. In both methods an historical observation period of one year is chosen and applied. VaR is calculated as our exposure as at the close of business, generally UK time. Intra-day risk levels may vary from those reported at the end of the day. A small proportion of market risk generated by trading positions is not included in VaR or cannot be appropriately captured by VaR. This is recognised through a Risks-not-in-VaR framework which conservatively estimates and then capitalises these risks where material. Back testing To assess their predictive power, VaR models are back tested against actual results. In 2013 there was one exception in the regulatory back testing (none in 2012). This is within the green zone applied internationally to internal models by bank supervisors. The daily loss associated with the single 2013 back testing exception was 3 per cent in excess of the corresponding VaR, and came from a combination of unexceptional losses across interest rates, foreign exchange and commodities

226 Financial risk management continued Stress testing Losses beyond the 97.5 per cent confidence interval are not captured by a VaR calculation, which therefore gives no indication of the size of unexpected losses in these situations. GMR complements the VaR measurement by weekly stress testing of market risk exposures to highlight the potential risk that may arise from extreme market events that are rare but plausible. Stress testing is an integral part of the market risk management framework and considers both historical market events and forward-looking scenarios. A consistent stress testing methodology is applied to trading and non-trading books. The stress testing methodology assumes that scope for management action would be limited during a stress event, reflecting the decrease in market liquidity that often occurs. Stress scenarios are regularly updated to reflect changes in risk profile and economic events. The GMRC has responsibility for reviewing stress exposures and where necessary, enforcing reductions in overall market risk exposure. The GRC considers the results of stress tests as part of its supervision of risk appetite. Regular stress test scenarios are applied to interest rates, credit spreads, exchange rates, commodity prices and equity prices. This covers all asset classes in the Financial Markets banking and trading books. Ad hoc scenarios are also prepared reflecting specific market conditions and for particular concentrations of risk that arise within the businesses. Market risk changes The average levels of total VaR and non-trading VaR were higher in 2013 than 2012 by 14 per cent and 8 percent respectively. This was primarily due to increased market volatility following comments by the chairman of the Federal Reserve on 22 May, 2013 that it was considering tapering its quantitative easing programme. The average level of trading VaR in 2013 was 23 per cent lower than 2012, with reduction in both interest rate and foreign exchange risk. As of 31 December, 2013, the total VaR, non-trading VaR and trading VaR were up 31 per cent, 37 per cent and 14 per cent respectively as compared to at end of This again was primarily due to the increase in market volatility observed after 22 May 2013 rather than increases in positions. Group Daily value at risk (VaR at 97.5%, 1 day) Trading and Non-trading Average High 4 Low 4 Actual 5 Average High 4 Low 4 Actual 5 $million $million $million $million $million $million $million $million Interest rate risk Foreign exchange risk Commodity risk Equity risk Total Trading Interest rate risk Foreign exchange risk Commodity risk Equity risk Total Non-trading Interest rate risk Equity risk Total Trading book for market risk is defined in accordance with the relevant section of the PRA Handbook s Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU). On 1 January 2014 this regulation will be superseded by the EU Capital Requirements Regulation (CRDIV/CRR). The PRA permits only certain types of financial instruments or arrangements to be included within the trading book, so this regulatory definition is narrower than the accounting definition of the trading book within IAS39 Financial Instruments: Recognition and Measurement Interest rate risk VaR includes credit spread risk arising from securities held for trading or available-for-sale The total VaR shown in the tables above is not a sum of the component risks due to offsets between them Highest and lowest VaR for each risk factor are independent and usually occur on different days Actual one day VaR at year end date

227 Financial risk management continued Market risk continued The following table sets out how trading and non-trading VaR is distributed across the Group s products: Average High 4 Low 4 Actual 5 Average High 4 Low 4 Actual 5 $million $million $million $million $million $million $million $million Trading and Non-trading Trading 1 Rates Global Foreign Exchange Credit Trading & Capital Markets Commodities Equities Total Non-trading Asset & Liability Management Other Financial Markets non-trading book Listed private equity Total Trading book for market risk is defined in accordance with the relevant section of the PRA Handbook s Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU). On 1 January 2014 this regulation will be superseded by the EU Capital Requirements Regulation (CRDIV/CRR). The PRA permits only certain types of financial instruments or arrangements to be included within the trading book, so this regulatory definition is narrower than the accounting definition of the trading book within IAS39 Financial Instruments: Recognition and Measurement 2 Interest rate risk VaR includes credit spread risk arising from securities held for trading or available-for-sale 3 The total VaR shown in the tables above is not a sum of the component risks due to offsets between them 4 Highest and lowest VaR for each risk factor are independent and usually occur on different days 5 Actual one day VaR at year end date

228 Financial risk management continued Market risk continued Average daily income earned from market risk related activities 1 Trading Interest rate risk Foreign exchange risk Commodity risk Equity risk Total Reflects total product income which is the sum of Client Income and Own Account Income. Includes elements of Trading Income, Interest Income and Other Income which are generated from market risk related activities. 2 Comparatives have been restated to exclude certain items of fee income $million $million Non-Trading Interest rate risk Equity risk Total Company Daily Value at Risk (VaR at 97.5%, 1 Day) Trading and Non-trading Interest rate risk Foreign exchange risk Commodity risk Equity risk Total Average daily income earned from market risk related activities Trading $million $million Interest rate risk Foreign exchange risk Commodity risk Equity risk Total $million $million Non-trading Interest rate risk Equity risk Total Reflects total product income which is the sum of Client Income and Own Account Income. Includes elements of Trading Income, Interest Income and Other Income which are generated from market risk related activities

229 Financial risk management continued Market risk continued Market risk VaR coverage Interest rate risk from non-trading book portfolios is transferred to Financial Markets where it is managed by local Asset and Liability Management (ALM) desks under the supervision of local Asset and Liability Committees (ALCO). ALM deals in the market in approved financial instruments in order to manage the net interest rate risk, subject to approved VaR and risk limits. VaR and stress tests are therefore applied to these non-trading book exposures (except Group Treasury, see below) in the same way as for the trading book, including available-for-sale securities. Securities classed as Loans and receivables or Held to maturity are not reflected in VaR or stress tests since they are accounted on an amortised cost basis, so market price movements have limited effect on either profit and loss or reserves. Structural foreign exchange currency risks are managed by Group Treasury, as described below, and are not included within Group VaR. Otherwise, the non-trading book does not run open foreign exchange positions. Equity risk relating to non-listed Private Equity and strategic investments is not included within the VaR. It is separately managed through delegated limits for both investment and divestment, and is also subject to regular review by an investment committee. These are included as Level 3 assets as disclosed in note 15 to the financial statements. Mapping of market risk items to the balance sheet Market risk contributes only 7 per cent of the group s regulatory capital risk-weighted assets (RWA) requirement. As highlighted in the VaR disclosure, the majority of market risk is managed within Financial Markets, which spans both trading book and non-trading book. The non-trading equity market risk is generated by listed private equity holdings within Principal Finance. Group Treasury manages the market risk associated with debt and equity capital issuance. The disclosures below are subject to change. The Group is exploring the possibility of presenting quantitative information on the tables below. Amounts as per financial statements 2013 Exposure to trading risk Exposure to non-trading risk $million $million $million Financial Assets Derivative financial instruments 62,161 61,059 1,102 Loans and advances to banks 86,168 13,472 72,696 Loans and advances to customers 295,891 8, ,248 Debt securities 85,920 11,638 74,282 Treasury bills 31,407 5,151 26,256 Equities 6,454 1,348 5,106 Other Assets 36,004 10,918 25,086 Total 604, , ,776 Financial Liabilities Deposits by banks 44,427-44,427 Customer accounts 390, ,971 Debt securities in issue 52,762-52,762 Derivative financial instruments 62,289 60,563 1,726 Short positions 5,293 5, Total 555,742 65, ,

230 Financial risk management continued Market risk continued Group Treasury market risk Group Treasury raises debt and equity capital and the proceeds are invested within the Group as capital or placed with ALM. Interest rate risk arises due to the investment of equity and reserves into rate-sensitive assets, as well as some tenor mismatches between debt issuance and placements. This risk is measured as the impact on net interest income (NII) of an unexpected and instantaneous adverse parallel shift in rates and is monitored over a rolling one-year time horizon (see table below). This risk is monitored and controlled by the Group s Capital Management Committee (CMC). Group Treasury NII sensitivity to parallel shifts in yield curves $million $million +25 basis points basis points (33.9) (33.1) Group Treasury also manages the structural foreign exchange risk that arises from non-us dollar currency net investments in branches and subsidiaries. The impact of foreign exchange movements is taken to reserves which form part of the capital base. The effect of exchange rate movements on the capital ratio is partially mitigated by the fact that both the value of these investments and the RWA in those currencies follow broadly the same exchange rate movements. With the approval of CMC, Group Treasury may hedge the net investments if it is anticipated that the capital ratio will be materially affected by exchange rate movements. At 31 December 2013, the Group had taken net investment hedges (using a combination of derivative and non-derivative financial investments) of $1,280 million (2012: $971 million) to partly cover its exposure to Korean won. The table below sets out the principal structural foreign exchange exposures (net of investment hedges) of the Group: $million $million Hong Kong dollar 7,079 6,619 Korean won 5,194 6,301 Indian rupee 3,793 4,025 Taiwanese dollar 2,853 2,946 Chinese renminbi 3,084 2,245 Singapore dollar 2,925 1,195 Thai baht 1,640 1,662 UAE dirham 1,766 1,598 Malaysian ringgit 1,650 1,360 Indonesian rupiah 993 1,164 Pakistani rupee Other 4,010 3,648 35,517 33,349 An analysis has been performed on these exposures to assess the impact of a one per cent change in the US dollar exchange rates adjusted to incorporate the impacts of correlations of these currencies to the US dollar. The impact on the positions above would be an increase or decrease in value of $247 million (2012: $255 million). Changes in the valuation of these positions are taken to reserves

231 Financial risk management continued Market risk continued Derivatives Derivatives are contracts with characteristics and value derived from underlying financial instruments, interest and exchange rates or indices. They include futures, forwards, swaps and options transactions. Derivatives are an important risk management tool for banks and their customers because they can be used to manage market price risk. The market risk of derivatives is managed in essentially the same way as other traded products. Our derivative transactions are principally in instruments where the mark-to-market values are readily determinable by reference to independent prices and valuation quotes. We enter into derivative contracts in the normal course of business to meet customer requirements and to manage our exposure to fluctuations in market price movements. Derivatives are carried at fair value and shown in the balance sheet as separate totals of assets and liabilities. Recognition of fair value gains and losses depends on whether the derivatives are classified as trading or held for hedging purposes. The credit risk arising from all financial derivatives is managed as part of the overall lending limits to financial institutions and corporate customers. This is covered in more detail in the Credit risk section. Hedging Countries within the Group use futures, forwards, swaps and options transactions primarily to mitigate interest and foreign exchange risk arising from their in-country exposures. The Group also uses futures, forwards and options to hedge foreign exchange and interest rate risk. In accounting terms under IAS 39, hedges are classified into three types: fair value hedges, predominantly where fixed rates of interest or foreign exchange are exchanged for floating rates; cash flow hedges, predominantly where variable rates of interest or foreign exchange are exchanged for fixed rates; and hedges of net investments in overseas operations translated to the parent company s functional currency, US dollars. The notional value of interest rate swaps for the purpose of fair value hedging increased by $22.4 billion at 31 December 2013 compared to 31 December Fair value hedges largely hedge the interest rate risk on our sub-debt and debt securities in the UK which form part of the Group s liquidity buffers and are used to manage fixed-rate securities and loan portfolios in our key markets. Currency and interest rate swaps used for cash flow hedging have increased by $2 billion as at 31 December 2013 compared to 31 December The increase of cash flow hedges is attributable to floating-rate loans, bonds and deposits mainly in Korea and Singapore. We may also, under certain individually approved circumstances, enter into economic hedges that do not qualify for IAS 39 hedge accounting treatment, and which are accordingly marked to market through the profit and loss account, thereby creating an accounting asymmetry. These are entered into primarily to ensure that residual interest rate and foreign exchange risks are being effectively managed. Current economic hedge relationships include hedging the foreign exchange risk on certain debt issuances and on other monetary instruments held in currencies other than US dollars

232 Financial risk management continued Liquidity risk Liquidity risk is the risk that we either do not have sufficient financial resources available to meet our obligations as they fall due, or can only access these financial resources at excessive cost. It is our policy to maintain adequate liquidity at all times, in all geographic locations and for all currencies, and hence to be in a position to meet obligations as they fall due. We manage liquidity risk both on a short-term and structural basis. In the short-term, our focus is on ensuring that the cash flow demands can be met where required. In the medium-term, the focus is on ensuring that the balance sheet remains structurally sound and is aligned to our strategy. The GALCO is the responsible governing body that approves our liquidity management policies. The Liquidity Management Committee (LMC) receives authority from the GALCO and is responsible for setting or delegating authority to set liquidity limits and proposing liquidity risk policies. Liquidity in each country is managed by the country ALCO within pre-defined liquidity limits and in compliance with Group liquidity policies and practices, as well as local regulatory requirements. GMR and Group Treasury propose and oversee the implementation of policies and other controls relating to the above risks. We seek to manage our liquidity prudently in all geographical locations and for all currencies. Exceptional market events could impact us adversely, thereby potentially affecting our ability to fulfill our obligations as they fall due. The principal uncertainties for liquidity risk are that customers withdraw their deposits at a substantially faster rate than expected, or that asset repayments are not received on the expected maturity date. To mitigate these uncertainties, our funding base is diverse and largely customer-driven, while customer assets are of short tenor (58 per cent of assets have a contractual maturity of less than 1 year). In addition we have contingency funding plans including a portfolio of liquid assets that can be realised if a liquidity stress occurs, as well as ready access to wholesale funds under normal market conditions. Policies and procedures Our liquidity risk management framework requires limits to be set and monitored. There are limits on: The local and foreign currency cash flow gaps The level of external wholesale borrowing to ensure that the size of this funding is proportionate to the local market and our local operations The level of borrowing from other countries within the Group to contain the risk of contagion from one country to another Commitments and contingents to ensure that sufficient funds are available in the event of drawdown The advances to deposits ratio to ensure that commercial advances are funded by stable sources and that customer lending is funded by customer deposits The amount of assets that may be funded from other currencies The amount of medium term assets that have to be funded by medium term funding In addition, we prescribe a liquidity stress scenario that includes accelerated withdrawal of deposits over a period of time. Each country has to ensure on a daily basis that cash inflows would exceed outflows under such a scenario. All limits are reviewed at least annually, and more frequently if required, to ensure that they remain relevant given market conditions and business strategy. Compliance with limits is monitored independently on a regular basis by GMR and Finance. Limit excesses are escalated and approved under a delegated authority structure and reported to the ALCO. Excesses are also reported monthly to the LMC which provide further oversight. We have significant levels of marketable securities, including government securities that can be monetised or pledged as collateral in the event of a liquidity stress. In addition, a Funding Crisis Response and Recovery Plan (FCRRP), reviewed and approved annually, is maintained by Group Treasury. The FCRRP strengthens existing governance processes by providing a broad set of Early Warning Indicators, an escalation framework and a set of management actions that could be effectively implemented by the appropriate level of senior management in the event of a liquidity stress. A similar plan is maintained within each country

233 Financial risk management continued Liquidity risk continued Primary sources of funding A substantial portion of our assets are funded by customer deposits, largely made up of current and savings accounts. Of total customer deposits, 42.5 per cent are retail deposits and 57.5 per cent wholesale customer deposits (31 December 2012: retail 43.1 per cent, wholesale customer deposits 56.9 per cent). Wholesale customer deposits are widely diversified by type and maturity and represent a stable source of funds for the Group. In addition, the short term nature of our wholesale assets results in a balance sheet that is funded conservatively (64 per cent of wholesale banking loans and advances have a contractual maturity of less than one year). The ALCO in each country monitors trends in the balance sheet and ensures that any concerns that might impact the stability of these customer deposits are addressed effectively. The ALCO also reviews balance sheet plans to ensure that projected asset growth is matched by growth in customer deposits. Customer assets are as far as possible funded in the same currency. Where mismatches arise, they are controlled by limits in each country on the amount of foreign currency that can be swapped to local currency and vice versa. Such limits are therefore a means of controlling reliance on foreign exchange markets, which minimises the risk that obligations could not be met in the required currency in the event that access to foreign exchange markets becomes restricted. In sizing the limits we consider a range of factors including: The size and depth of local Foreign Exchange markets; and The local regulatory environment, particularly the presence or risk of imposition of foreign exchange controls. We maintain access to wholesale funding markets in all major financial centres and countries in which we operate. This seeks to ensure that we have market intelligence, maintain stable funding lines and can obtain optimal pricing when we perform our interest rate risk management activities. Debt refinancing levels are low. In the next 12 months approximately $2.7 billion of the Group s senior and subordinated debt is falling due for repayment either contractually or callable by the Group. Further details of the Group s senior and subordinated debt by geography are provided in note 2 to the financial statements on page 153. The table below shows the diversity of funding by type and by geography. Customer deposits make up 58 per cent of total liabilities as at 31 December 2013, the majority of which are current accounts, savings accounts and time deposits. Our largest customer deposit base by geography is Hong Kong, which holds 27.1 per cent of Group customer accounts Composition of Liabilities % Customer accounts 58.4 Deposits by banks 6.6 Derivatives 9.3 Other liabilities 8.2 Debt securities in issue 7.9 Subordinated liabilities and other borrowed funds 3.3 Shareholders equity 6.3 Total Geographic distribution of customer accounts % Hong Kong 27.1 Singapore 19.0 Korea 7.8 Other Asia Pacific 16.5 India 3.3 MESA 6.7 Africa 2.9 Americas UK & Europe 16.7 Total

234 Financial risk management continued Liquidity risk continued Encumbered assets - Group Encumbered assets represent those on balance sheet assets pledged or used as collateral in respect of certain Group liabilities. Hong Kong government certificates of indebtedness which secure the equivalent amount of Hong Kong currency notes in circulation, and cash collateral pledged against derivatives are classified as encumbered and included within other assets. Taken together, these encumbered assets represent 3.1 per cent (2012: 2.2 per cent) of total assets, continuing the Group s historical low level of encumbrance. The following table provides a reconciliation of the Group s encumbered assets to total assets Unencumbered assets Unencumbered assets Not readily available to secure funding Readily available to secure funding Encumbered assets Total assets Not Readily available to secure funding Readily available to secure funding Encumbered assets $million $million $million $million $million $million $million $million Cash and balances at central banks 9,946 44,588-54,534 9,336 51,201-60,537 Derivative financial instruments 62, ,161 49, ,495 Loans and advances to banks 1 46,917 36,890 2,361 86,168 37,455 30, ,570 Loans and advances to customers 1 294,760-1, , ,238-2, ,616 Investment securities 1 48,355 71,910 3, ,781 48,910 70,041 1, ,549 Other assets 19,809-13,685 33,494 19,216-9,259 28,475 Current tax assets Prepayments and accrued income 2, ,493 2, ,552 Interest in associates and joint ventures 1, ,767 1, ,684 Goodwill and intangible assets 5, ,694 6, ,787 Property, plant and equipment 6, ,903 6, ,620 Deferred tax assets Total 499, ,388 20, , , ,634 13, ,776 Includes assets held at fair value through profit or loss Total assets In addition to the above the Group received $17,835 million (2012: $10,949 million) as collateral under reverse repurchase agreements that was eligible for repledging. Of this the Group repledged $1,804 million (2012: $1,378 million) under repurchase agreements

235 Financial risk management continued Liquidity assets continued Encumbered assets - Company Encumbered assets represent those on balance sheet assets pledged or used as collateral in respect of certain of the Group s liabilities. Cash collateral pledged against derivatives is included within other assets. Taken together these encumbered assets represent 1.9 per cent (2012: 2.0 per cent) of total assets, continuing the Company s historical low level of encumbrance. The following table provides a reconciliation of the Company s encumbered assets to total assets Unencumbered assets Unencumbered assets Not readily available to secure funding Readily available to secure funding Encumbered assets Total assets Not readily available to secure funding Readily available to secure funding Encumbered assets Total assets $million $million $million $million $million $million $million $million Cash and balances at central banks 4,144 37,128-41,272 4,629 45,026-49,655 Derivative financial instruments 60, ,146 47, ,443 Loans and advances to banks 1 30,090 20,076 2,252 52,418 18,132 19, ,024 Loans and advances to customers 1 134, , ,711-1, ,822 Investment securities 1 9,816 45,470-55,286 8,662 45, ,028 Other assets 16,565-5,055 21,620 13,724-5,055 18,779 Due from Subsidiary undertakings and other related parties 17, ,520 18, ,029 Current tax assets Prepayments and accrued income 1, ,133 1, ,170 Investment in Subsidiary undertakings, Interest in associates and joint ventures 15, ,307 14, ,105 Goodwill and intangible assets , ,031 Property, plant and equipment Deferred tax assets Total 290, ,674 7, , , ,614 7, ,320 Readily available to secure funding Readily available to secure funding includes unencumbered assets that can be sold outright or under repo within a few days, in line with regulatory definitions. The Group s readily available assets comprise cash and balances at central banks, loans and advances to banks and investment securities. Assets classified as not readily available to secure funding include: Assets which have no restrictions for funding and collateral purposes, such as loans and advances to customers, which are not acquired or originated with the intent of generating liquidity value Assets that cannot be encumbered, such as derivatives, goodwill and intangible and deferred tax assets

236 Financial risk management continued Liquidity risk continued Liquidity metrics Key liquidity metrics are monitored on a regular basis, both on a country basis and in aggregate across the Group. These include: Advances to deposits ratio This is defined as the ratio of total loans and advances to customers relative to total customer deposits. A low advances to deposits ratio demonstrates that customer deposits exceed customer loans resulting from emphasis placed on generating a high level of stable funding from customers $million Loans and advances to customers 1 295, ,616 Customer accounts 2 390, , $million % % Advances to deposits ratio see note 19 to the financial statements on page see note 30 to the financial statements on page 217 Company 2013 $million Loans and advances to customers 1 134, ,822 Customer accounts 2 161, , $million % % Advances to deposits ratio see note 19 to the financial statements on page see note 30 to the financial statements on page

237 Financial risk management continued Liquidity risk continued Liquid asset ratio Group The Liquid Asset Ratio (LAR) ensures that a proportion of total assets are held in liquid assets, on a consolidated currency basis. Liquid assets are the total cash (less restricted balances), treasury bills, loans and advances to bank (including net unsecured interbank and trade finance) and debt securities (less illiquid securities). Illiquid Securities are debt securities that cannot be sold or exchanged easily for cash without substantial loss in value. The Group LAR remained at similar levels as in the previous year, reflecting an increase in liquid assets holdings to match balance sheet growth. The following table sets an analysis of the Group s liquid assets by geographic region: Hong Kong Singapore Korea Other Asia Pacific 2013 India Middle East & Other S Asia Africa Americas UK & Europe $ million $ million $ million $ million $ million $ million $ million $ million $million Cash and balances at central banks 2,099 2, , ,439 1,621 31,998 54,534 Restricted balances (6) (2,028) (542) (4,361) (478) (1,591) (644) (296) (9,946) Loans and advances to banks - net of non-performing loans 17,652 4,501 4,192 14, , ,498 86,061 Deposits by banks (2,091) (4,792) (1,479) (6,926) (459) (1,574) (566) (26,540) (44,427) Treasury bills 10,247 3,627 6,794 1,618 2,167 1,620 2,777 2,557 31,407 Debt securities 20,273 11,391 5,271 15,179 2,495 4,387 2,803 24,121 85,920 of which : Issued by governments 4,256 2,988 3,664 12,590 1,760 3,784 1,307 3,525 33,874 Issued by banks 11,206 3, , ,856 32,164 Issued by corporate and other entities 4,811 4, , ,229 6,740 19,882 Illiquid securities and other assets (170) (348) - - (769) (43) - (1,051) (2,381) Liquid assets 48,004 14,425 15,123 33,030 4,055 7,511 6,733 72, ,168 Total assets 141, ,296 62, ,753 22,747 41,914 19, , ,678 Liquid assets to total asset ratio (%) Total Hong Kong Singapore Korea Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $ million $ million $ million $ million $ million $ million $ million $ million $million Cash and balances at central banks 1,880 1, , ,138 1,463 40,002 60,537 Restricted balances (4) (1,759) (182) (4,477) (571) (1,483) (508) (352) (9,336) Loans and advances to banks - net of non-performing loans 19,351 6,205 4,633 8, , ,104 68,364 Deposits by banks (1,585) (2,005) (1,769) (5,628) (441) (1,934) (540) (23,493) (37,395) Treasury bills 5,454 4,102 9,119 2,737 1,996 1,928 2,260 2,099 29,695 Debt securities 21,207 11,352 4,299 14,303 3,617 4,472 2,810 22,362 84,422 of which : Issued by governments 4,916 3,152 2,194 11,961 2,651 3,721 1,134 3,959 33,688 Issued by banks 12,537 4,453 1,083 1, ,445 32,261 Issued by corporate and other entities 3,754 3,747 1, ,357 6,958 18,473 Illiquid securities and other (357) (655) - (320) (828) (27) - (1,353) (3,540) Liquid assets 45,946 19,172 16,594 26,445 5,189 8,169 5,863 65, ,747 Total assets 129, ,997 69, ,406 23,812 40,779 17, , ,776 Liquid assets to total asset ratio (%) Total

238 Financial risk management continued Liquidity risk continued Liquid asset ratio Company 2013 Middle East & Other S Asia Americas UK & Europe Other Asia Singapore Pacific India Africa Total $ million $ million $ million $ million $ million $ million $million Cash and balances at central banks 1,476 4, , ,956 41,272 Restricted balances (1,476) (534) (463) (1,327) (47) (297) (4,144) Loans and advances to banks - net of Non-performing loans 4,451 3, , ,231 52,405 Deposits by banks (4,792) (2,574) (458) (1,411) (218) (26,513) (35,966) Treasury bills 2, , ,556 8,313 Debt securities 9,049 1,526 2,495 3, ,095 43,586 of which : Issued by governments 2,184 1,456 1,760 3, ,348 12,306 Issued by banks 2, ,816 17,606 Issued by corporate and other entities 3, ,931 13,674 Illiquid securities and other (348) - (769) - - (1,100) (2,217) Liquid assets 10,483 7,549 3,960 6,235 1,094 73, ,249 Total assets 86,214 23,465 21,947 37,860 3, , ,037 Liquid assets to total asset ratio (%) Singapore Other Asia Pacific 2012 India Middle East & Other S Asia Africa Americas UK & Europe $ million $ million $ million $ million $ million $ million $million Cash and balances at central banks 1,915 5, , ,953 49,655 Restricted balances (1,759) (699) (553) (1,213) (53) (352) (4,629) Loans and advances to banks - Non-performing loans 6,205 2, , ,749 37,909 Deposits by banks (2,005) (1,824) (440) (1,681) (58) (23,335) (29,343) Treasury bills 4, , ,100 9,526 Debt securities 11,287 1,404 3,617 4, ,148 42,978 of which : Issued by governments 3,086 1,026 2,651 3, ,959 14,181 Issued by banks 4, ,465 17,271 Issued by corporate and other entities 3, ,724 11,526 Illiquid securities and other (75) (15) (808) - - (1,489) (2,387) Liquid assets 19,670 6,653 5,090 6, , ,709 Total assets 111,516 23,462 22,986 36,471 2, , ,320 Liquid assets to total asset ratio (%) Total

239 Financial risk management continued Liquidity risk continued Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) The Group monitors the LCR and NFSR in line with the Bank of International Settlements BCBS238 guidelines. The Group already meets the Basel III requirements for both the NSFR and the LCR, well ahead of the required implementation date. As at 31 December 2013 both Group LCR and NSFR were between 110 and 120 per cent. Liquidity management stress scenarios The Group conducts a range of liquidity related stress analyses, both for internal and regulatory purposes. Internally, three stress tests are run routinely: an acute eight-day name specific stress, a 30-day market-wide stress and a more chronic 90-day combined name specific and market-wide stress. Liquidity and funding risks are also considered as part of the Group s wider periodic scenario analysis, including reverse stress testing. In addition, the Group runs a range of stress tests to meet regulatory requirements, as defined by the PRA and local regulators. The eight-day stress is specifically designed to determine a minimum quantity of marketable securities that must be held at all times in all countries. This stress is computed daily, and the minimum marketable securities requirement is observed daily. This is intended to ensure that, in the unlikely event of an acute loss of confidence in the Group or any individual entity within it, there is sufficient time to take corrective action. Every country must pass, on a stand-alone basis, with no presumption of Group support. As at 31 December 2013 all countries passed the stress test. The Group s resilience to market-wide disruption, such as loss of interbank money or foreign exchange markets, is tested using the 30-day market-wide stress scenario, and is monitored by country ALCOs. Finally, the 90-day stress test considers more prolonged stresses that affect markets across a number of the Group s main footprint countries and in which the Group itself may come under some sustained pressure. This pressure may be unwarranted or may be because the Group is inextricably linked with those markets/countries. This stress is managed at a Group rather than individual country level. It tests the adequacy of contingency funding arrangements beyond the marketable securities held to cover the eightday stress, including the ability to support countries from elsewhere in the Group. Our country stress testing considers potential currency mismatches between outflows and inflows. Particular focus is paid to mismatches in less liquid currencies and those which are not freely convertible. Mismatches are controlled by management action triggers set by Group Market Risk (GMR). Group-wide stress tests also consider the portability of liquidity surpluses between Group entities, taking account of regulatory restrictions on large and intra-group exposures. Standard Chartered Bank s credit ratings as at end of December 2013 were AA- (Fitch), A+ (S&P) and A1 (Moody s). A downgrade in credit rating would increase derivative collateral requirements and outflows due to conditional liabilities. The impact of a two-notch downgrade results in an estimated outflow of $1.2 billion

240 Financial risk management continued Liquidity risk continued Liquidity analysis of the Group's balance sheet Contractual maturity of assets and liabilities The tables below analyses assets and liabilities into relevant maturity groupings based on the remaining period to the contractual maturity date as at the balance sheet date. The Group seeks to manage its liabilities both on a contractual and behavioural basis primarily by matching the maturity profile of assets and liabilities. The tables indicate the relatively short-term nature of our asset book; over half of total assets mature within one year, and of these approximately 70 per cent mature within three months. The net funding surplus evident in the one month or less bucket is largely reflective of on demand customer liabilities. The net mismatch between assets and liabilities (or net gap) with a contractual maturity greater than one month is managed conservatively with internal limits. One month or less Between one month and three months Between three months and six months Between six months and nine months 2013 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Assets Cash and balances at central banks 44, ,961 54,534 Derivative financial instruments 6,820 7,376 8,403 4,514 3,612 9,085 13,633 8,718 62,161 Loans and advances to banks 1 36,890 21,704 13,349 5,543 5,153 1,647 1, ,168 Loans and advances to customers 1 73,036 29,469 23,541 10,772 11,553 22,549 48,297 76, ,891 Investment securities 1 11,496 13,948 12,567 7,252 11,234 21,052 30,355 15, ,781 Other assets 14,677 10,964 2, ,606 51,143 Total assets 187,228 83,725 60,160 28,125 31,868 54,368 94, , ,678 Total One month or less Between one month and three months Between three months and six months Between six months and nine months 2013 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Liabilities Deposits by banks 1 36,084 4,873 1, ,427 Customer accounts 1 279,638 48,630 26,473 12,864 10,793 2,574 6,310 3, ,971 Derivative financial instruments 6,922 7,306 9,608 4,101 3,472 8,725 13,104 9,051 62,289 Senior debt , ,529 Other debt securities in issue 1 10,114 13,252 11,516 1,422 1,938 1,141 1,992 4,858 46,233 Other liabilities 12,759 8,665 3, ,099 10,911 38,629 Due to Parent companies 16, ,364 Subordinated liabilities and other borrowed funds ,785 17,356 22,147 Total liabilities 362,359 83,017 53,265 20,171 16,831 13,770 30,792 47, ,589 Net liquidity gap (175,131) 708 6,895 7,954 15,037 40,598 63,492 86,536 46,089 1 Amounts include financial instruments held at fair value through profit or loss (see note 15 on pages ) Total

241 Financial risk management continued Liquidity risk continued Liquidity analysis of the Group's balance sheet continued Contractual maturity of assets and liabilities continued One month or less Between one month and three months Between three months and six months Between six months and nine months 2012 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Assets Cash and balances at central banks 51, ,336 60,537 Derivative financial instruments 4,787 5,705 4,365 3,079 2,079 6,762 12,272 10,446 49,495 Loans and advances to banks 1 30,392 16,312 6,275 3,514 9,127 1,635 1, ,570 Loans and advances to customers 1 61,261 28,393 21,819 12,678 9,796 20,566 49,221 80, ,616 Investment securities 1 8,205 16,578 13,609 7,520 12,912 15,695 31,575 14, ,549 Other assets 9,663 12,602 1, ,676 47,009 Total assets 165,509 79,590 47,970 27,393 34,191 44,738 94, , ,776 Total One month or less Between one month and three months Between three months and six months Between six months and nine months 2012 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Liabilities Deposits by banks 1 32,869 2,541 1, ,395 Customer accounts 1 264,949 49,271 29,693 10,605 12,674 6,045 4,828 7, ,117 Derivative financial instruments 4,887 5,190 4,685 3,355 2,110 6,382 11,925 9,660 48,194 Senior debt ,339 1, ,081 1, ,121 Other debt securities in issue 1 7,961 15,862 4,889 2,278 2,723 1,693 1,454 2,725 39,585 Other liabilities 9,671 7,273 3,499 1, ,580 35,515 Due to Parent companies 15, ,096 Subordinated liabilities and other borrowed funds ,496 17,805 22,873 Total liabilities 336,200 81,605 45,521 18,480 19,360 16,075 24,335 49, ,896 Net liquidity gap (170,691) (2,015) 2,449 8,913 14,831 28,663 70,065 87,665 39,880 1 Amounts include financial instruments held at fair value through profit or loss (see note 15 on pages ) Total

242 Financial risk management continued Liquidity risk continued Liquidity analysis of the Company's balance sheet Contractual maturity of assets and liabilities continued One month or less Between one month and three months Between three months and six months Between six months and nine months 2013 Between nine months and one year Between one year and two years Between two years More than and five years five years and undated Total $million $million $million $million $million $million $million $million $million Assets Cash and balances at central banks 37, ,144 41,272 Derivative financial instruments 6,550 7,319 8,189 4,429 3,529 8,706 12,734 8,690 60,146 Loans and advances to banks 1 20,076 12,627 9,444 3,688 3,514 1,568 1, ,418 Loans and advances to customers 1 44,064 17,321 12,236 5,100 6,170 10,278 26,392 12, ,507 Investment securities 1 2,693 3,103 3,747 2,562 3,601 8,963 20,040 10,577 55,286 Investment in subsidiary undertakings ,763 14,763 Other assets 12,155 8,547 1, ,813 25,125 Due from subsidiary undertakings 17, ,520 Total assets 140,186 48,917 35,066 15,812 16,920 29,522 60,597 54, ,037 One month or less Between one month and three months Between three months and six months Between six months and nine months 2013 Between nine months and one year Between one year and two years Between two years More than and five years five years and undated Total $million $million $million $million $million $million $million $million $million Liabilities Deposits by banks 1 30,578 3,663 1, ,966 Customer accounts 1 110,914 25,002 11,456 5,858 3, , ,431 Derivative financial instruments 6,685 7,191 9,404 4,111 3,306 8,318 12,267 8,421 59,703 Senior debt Other debt securities in issue 9,332 11,667 10,855 1,329 1,835 1,129 1,177 2,836 40,160 Other liabilities 8,360 4,915 2, ,777 19,844 Due to subsidiary undertakings 33, ,096 Subordinated liabilities and other borrowed funds ,691 15,050 19,741 Total liabilities 198,965 52,438 35,130 12,201 9,169 10,168 22,816 29, ,130 Net liquidity gap (58,779) (3,521) (64) 3,611 7,751 19,354 37,781 24,774 30,907 1 Amounts include financial instruments held at fair value through profit or loss (see note 15 on pages )

243 Financial risk management continued Liquidity risk continued Liquidity analysis of the Company's balance sheet continued Contractual maturity of assets and liabilities continued One month or less Between one month and three months Between three months and six months Between six months and nine months 2012 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Assets Cash and balances at central banks 49, ,655 Derivative financial instruments 4,751 5,118 4,747 2,711 1,791 7,170 10,747 10,408 47,443 Loans and advances to banks 1 19,169 7,486 5,178 1,607 1,877 1,503 1, ,024 Loans and advances to customers 1 38,083 15,642 11,615 6,540 3,730 12,282 24,462 30, ,822 Investment securities 1 3,317 3,252 5,712 3,388 3,859 6,668 19,079 9,753 55,028 Investment in subsidiary undertakings ,571 13,571 Other assets 8,257 9,816 1, ,009 22,748 Due from subsidiary undertakings 18, ,029 Total assets 141,261 41,314 28,732 14,346 11,314 27,638 55,334 67, ,320 One month or less Between one month and three months Between three months and six months Between six months and nine months 2012 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Liabilities Deposits by banks 1 26,996 1, ,343 Customer accounts 1 116,062 26,558 14,056 6,472 4,204 4,980 2, ,850 Derivative financial instruments 4,555 5,107 4,527 3,360 1,789 5,693 11,460 9,506 45,997 Senior debt Other debt securities in issue 7,228 14,993 4,450 1,982 2,688 1,478 1,492 1,285 35,596 Other liabilities 6,738 3,518 2, ,127 17,319 Due to subsidiary undertakings 39, ,244 Subordinated liabilities and other borrowed funds ,486 20,107 Total liabilities 201,408 51,792 25,715 13,336 8,915 12,524 16,090 32, ,688 Net liquidity gap (60,147) (10,478) 3,017 1,010 2,399 15,114 39,244 34,473 24,632 1 Amounts include financial instruments held at fair value through profit or loss (see note 15 on pages ) Total Total

244 Financial risk management continued Liquidity risk continued Behavioural maturity of financial assets and liabilities The cash flows presented on page 136 reflect the cash flows which will be contractually payable over the residual maturity of the instruments. However, contractual maturities do not necessarily reflect the timing of actual repayments or cash flow. In practice, certain asset and liability instruments behave differently from their contractual terms and, especially for short term customer accounts, extend to a longer period than their contractual maturity. Such behavioural adjustments are identified in each country through analysis of the historic behaviour of balances. The Group s expectation of when assets and liabilities are likely to become due is provided in the table below: One month or less Between one month and three months Between three months and six months Between six months and nine months 2013 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated Total $million $million $million $million $million $million $million $million $million Assets Loans and advances to 55,193 27,724 18,204 8,491 17,867 21,239 88,092 59, ,891 customers 1 Loans and advances to 36,990 21,855 13,342 5,532 5,072 1,554 1, ,168 banks 1 Total loans and advances 92,183 49,579 31,546 14,023 22,939 22,793 89,757 59, ,059 Liabilities Deposits by banks 1 35,804 5,063 1, ,427 Customer accounts 1 131,684 28,574 16,700 11,055 23, ,686 58,868 4, ,971 Total deposits 167,488 33,637 18,172 11,482 23, ,824 59,465 5, ,398 Net gap (75,305) 15,942 13,374 2,541 (852) (93,031) 30,292 53,700 (53,339) One month or less Between one month and three months Between three months and six months Between six months and nine months 2012 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Assets Loans and advances to 56,217 25,101 21,296 16,201 12,409 2,093 86,169 65, ,616 customers 1 Loans and advances to banks 1 36,152 13,238 9,299 3,245 3,359 1,196 1, ,570 Total loans and advances 92,369 38,339 30,595 19,446 15,768 3,289 88,079 65, ,186 Total Liabilities Deposits by banks 1 32,543 2,722 1, ,395 Customer accounts 1 123,574 37,998 26,839 11,732 26, ,071 43,885 8, ,117 Total deposits 156,117 40,720 27,978 11,857 26, ,375 44,188 8, ,512 Net gap (63,748) (2,381) 2,617 7,589 (10,940) (103,086) 43,891 56,732 (69,326) 1 Amounts include financial instruments held at fair value through profit or loss (see note 15 on pages )

245 Financial risk management continued Liquidity risk continued Behavioural maturity of financial assets and liabilities continued Company One month or less Between one month and three months Between three months and six months Between six months and nine months 2013 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Assets Loans and advances to 39,961 19,322 12,381 5,203 6,450 10,538 27,295 13, ,507 banks 1 Loans and advances to customers 1 20,174 12,698 9,409 3,674 3,513 1,536 1, ,418 Total loans and advances 60,135 32,020 21,790 8,877 9,963 12,074 28,565 13, ,925 Liabilities Deposits by banks 1 30,319 3,774 1, ,966 Customer accounts 1 69,509 19,361 11,361 7,194 6,664 4,585 42, ,431 Total deposits 99,828 23,135 12,546 7,313 6,814 4,627 43, ,397 Net gap (39,693) 8,885 9,244 1,564 3,149 7,447 (14,525) 13,457 (10,472) Total One month or less Between one month and three months Between three months and six months Between six months and nine months 2012 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Assets Loans and advances to 33,074 16,320 14,091 7,185 4,552 13,242 24,011 30, ,822 banks 1 Loans and advances to customers 1 24,803 4,675 3,155 1,233 1,482 1,025 1, ,024 Total loans and advances 57,877 20,995 17,246 8,418 6,034 14,267 25,495 30, ,846 Total Liabilities Deposits by banks 1 27,030 1, ,343 Customer accounts 1 57,676 23,096 20,234 7,956 8,607 5,101 52, ,850 Total deposits 84,706 24,411 20,670 7,997 8,752 5,261 52, ,193 Net gap (26,829) (3,416) (3,424) 421 (2,718) 9,006 (26,858) 30,471 (23,347) 1 Amounts include financial instruments held at fair value through profit or loss (see note 15 on pages )

246 Financial risk management continued Liquidity risk continued Financial liabilities (excluding derivative financial instruments) on an undiscounted basis The following table analyses the contractual cash flows payable for the Group s financial liabilities by remaining contractual maturities on an undiscounted basis. The financial liability balances in the table below will not agree to the balances reported in the consolidated balance sheet as the table incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments. Within the More than five years and undated maturity band are undated financial liabilities of $3,124 million (2012: $3,241 million), all of which relate to subordinated debt, on which interest payments are not included as this information would not be meaningful given the instruments are undated. Interest payments on these instruments are included within the relevant maturities up to five years Group 2013 One month or less Between one month and three months Between three months and six months Between six months and nine months Between nine months and one year Between one year and two years Between two years and five years More than five years and undated Total $million $million $million $million $million $million $million $million $million Deposits by banks 1 36,084 4,873 1, ,603 Customer accounts 1 279,638 48,630 26,473 12,864 10,793 2,820 6,972 4, ,549 Debt securities in issue 1 10,592 13,543 12,436 4,020 2,636 1,749 4,973 5,660 55,609 Subordinated liabilities and other borrowed funds ,020 31,325 40,272 1 Other liabilities 12,759 8,665 3, ,099 10,911 38,629 Total liabilities 339,081 75,824 43,952 18,538 14,316 6,315 20,652 52, ,662 Amounts include financial instruments held at fair value through profit or loss (see note 15 on page 166) 2012 One month or less Between one month and three months Between three months and six months Between six months and nine months Between nine months and one year Between one year and two years Between two years and five years More than five years and undated Total $million $million $million $million $million $million $million $million $million Deposits by banks 1 32,869 2,585 1, ,624 Customer accounts 1 264,949 49,271 29,693 10,605 12,674 7,219 5,002 8, ,434 Debt securities in issue 1 8,334 17,201 6,627 3,046 3,460 4,029 3,665 3,214 49,576 Subordinated liabilities and other borrowed funds , ,493 32,424 40,802 1 Other liabilities 9,671 7,273 3,499 1, ,580 35,515 Total liabilities 316,311 76,622 41,164 15,459 17,970 12,601 15,491 55, ,951 Amounts include financial instruments held at fair value through profit or loss (see note 15 on page 166)

247 Financial risk management continued Liquidity risk continued Financial liabilities (excluding derivative financial instruments) on an undiscounted basis Company 2013 One month or less Between one month and three months Between three months and six months Between six months and nine months Between nine months and one year Between one year and two years Between two years and five years More than five years and undated Total $million $million $million $million $million $million $million $million $million Deposits by banks 1 30,578 3,663 1, ,106 Customer accounts 1 110,914 25,002 11,641 5,858 3, , ,722 Debt securities in issue 1 9,332 11,667 10,855 1,329 1,835 1,129 1,366 3,227 40,740 Subordinated liabilities and other borrowed funds ,571 28,881 37,142 1 Other liabilities 8,360 4,915 2, ,777 19,844 Total liabilities 159,186 45,354 26,159 8,361 6,111 2,837 12,502 35, ,554 Amounts include financial instruments held at fair value through profit or loss (see note 15 on page 168) 2012 One month or less Between one month and three months Between three months and six months Between six months and nine months Between nine months and one year Between one year and two years Between two years and five years More than five years and undated Total $million $million $million $million $million $million $million $million $million Deposits by banks 1 26,996 1, ,478 Customer accounts 1 116,062 26,558 14,161 6,518 4,204 5,086 2, ,107 Debt securities in issue 1 7,228 14,993 4,452 1,982 2,785 1,494 1,547 1,554 36,035 Subordinated liabilities and other borrowed funds ,506 28,061 36,469 Other liabilities 6,738 3,518 2, ,127 17,319 Total liabilities 157,609 46,863 21,526 10,022 7,567 7,890 9,917 33, ,408 1 Amounts include financial instruments held at fair value through profit or loss (see note 15 on page 168)

248 Financial risk management continued Liquidity risk continued Derivatives financial instruments on an undiscounted basis Derivative financial instruments include those net settled derivative contracts in a net liability position, together with the pay leg of gross settled contracts regardless of whether the overall contract is in an asset or liability position. The receiving leg is not shown in this table and as a result the derivative amounts in this table are inflated by their exclusion. Derivative financial instruments make up 9 per cent of the Group balance sheet. Group One month or less Between one month and three months Between three months and six months Between six months and nine months 2013 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated Total $million $million $million $million $million $million $million $million $million Derivative financial instruments 204, , ,101 98,972 88, , ,221 82,249 1,050,947 One month or less Between one month and three months Between three months and six months Between six months and nine months 2012 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Derivative financial instruments 230, , ,576 45,166 35, ,875 13,449 46, ,626 Total Company One month or less Between one month and three months Between three months and six months Between six months and nine months 2013 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Derivative financial instruments 325, , , , , , ,817 80,627 1,369,294 Total One month or less Between one month and three months Between Between three months six months and and six months nine months 2012 Between nine months and one year Between one year and two years Between two years and five years More than five years and undated $million $million $million $million $million $million $million $million $million Derivative financial instruments 341, , ,670 69,463 58,143 38,734 14, ,853 Total

249 Financial risk management continued Operational risk Operational risk is the potential for loss arising from the failure of people, process or technology or the impact of external events. Operational risk exposures are managed through a consistent set of management processes that drive risk identification, assessment, control and monitoring. We seek to control operational risks to ensure that operational losses do not cause material damage to the Group s franchise. Operational risks can arise from all business lines and from all activities carried out by the Group. We seek to systematically identify and manage operational risk by segmenting all the Group s activities into manageable units. Each of these has an owner who is responsible for identifying and managing all the risks that arise from those activities as an integral part of their first line of defence responsibilities. Products and services offered to clients and customers in all our markets are also assessed and authorised in accordance with product governance procedures. Although operational risk exposures can take many varied forms, we seek to manage them in accordance with standards that drive systematic risk identification, assessment, control and monitoring. These standards are challenged and reviewed regularly to ensure their ongoing effectiveness. To support the systematic identification of material operational risk exposures associated with a given process, we classify them into the following types: Operational Risk Subtypes Processing failure External Rules & Regulations Liability Legal enforceability Damage to assets Safety and security Internal crime or dishonesty External crime Model Potential for loss due to failure of an established process or to a process design weakness Potential for actual or opportunity loss due to failure to comply with laws or regulations, or as a result of changes in laws or regulations or in their interpretation or application Potential for loss or sanction due to a legal claim against any part of the Group or individuals within the Group Potential for loss due to failure to protect legally the Group s interests or from difficulty in enforcing the Group s rights Potential for loss or damage to physical assets and other property from natural disaster and other events Potential for loss or damage to health or safety of staff, customers or third parties arising from internal failures or the effects of external events Potential for loss due to action by staff that is intended to defraud, misappropriate property or to circumvent the law or company policy Potential for loss due to criminal acts by external parties such as fraud, theft and other criminal activity including internet crime Potential for loss due to a significant discrepancy between the output of risk measurement models and actual experience Identified operational risk exposures are rated Low, Medium, High or Very High in accordance with defined risk assessment criteria. Risks which are outside of set materiality thresholds receive a differential level of management attention and are reported to senior management and risk committees up to Board level. Significant external events or internal failures which have occurred are analysed to identify the root cause of any failure for remediation and future mitigation. Actual operational losses are systematically recorded

250 Financial risk management continued Operational risk continued In the second line of defence, Group Operational Risk is responsible for setting and maintaining the standards for operational risk management and control. In addition, specialist operational risk control owners have responsibility for the control of operational risk arising from the management of the following activities Group-wide: people, technology, vendor, property, security, accounting and financial control, tax, legal processes, corporate authorities and structure and regulatory compliance, as described further in the table below. Operational risk control area People management Technology management Vendor management Property management Security management Regulatory compliance Legal processes Accounting and Financial Control Tax management Corporate authorities and structure Recruiting, developing, compensating and managing employees Developing, maintaining and using information technology, and information security Procurement, licensing, outsourcing and supplier management Managing property assets, projects and facilities. Protecting the security of staff and customers Maintaining relationships with regulators, evidencing compliance with banking and securities regulations and managing regulatory change Effective documentation of material transactions and other material contractual agreements, controlling the rights pertaining to material assets of the Group, and managing material claims and legal disputes Financial and management accounting, associated reporting and financial control Maintaining relationships with tax authorities and managing the Group s tax affairs to ensure compliance with our obligations Maintaining effective corporate legal entity structure and corporate decision making authorities Each risk control owner, supported by a specialist control function, is responsible for identifying risks that are material to the Group and for maintaining an effective control environment, across the whole organisation. This includes defining appropriate policies for approval by authorised risk committees that impose specific controls and constraints on the Group s activities. The Group Operational Risk Committee, chaired by the GCRO, oversees the management of operational risks across the Group, supported by business, functional, and country-level committees. All operational risk committees operate on the basis of a defined structure of delegated authorities and terms of reference, derived from the GRC. At the Group level, the Group Financial Crime Risk Committee provides direct oversight of operational risk relating to compliance with financial crime laws and regulations. The Committee takes its authority directly from the GRC, providing additional oversight of these risks. Close alignment is maintained with the Group Operational Risk Committee through overlap in membership and reporting

251 Financial risk management continued Reputational risk Reputational risk is the potential for damage to the Group s franchise, resulting in loss of earnings or adverse impact on market capitalisation as a result of stakeholders taking a negative view of the Group or its actions. Reputational risk could arise from the failure of the Group to effectively mitigate the risks in its businesses including one or more of country, credit, liquidity, market, regulatory, legal or other operational risk. Damage to the Group s reputation could cause existing clients to reduce or cease to do business with the Group and prospective clients to be reluctant to do business with the Group. All employees are responsible for day to day identification and management of reputational risk. These responsibilities form part of the Group Code of Conduct and are further embedded through values-based performance assessments. Reputational risk may also arise from a failure to comply with environmental and social standards. Our primary environmental and social impacts arise through our relationship with our clients and customers and the financing decisions we take. We have published a series of Position Statements which we apply in the provision of financial services to clients who operate in sectors with specific risks, and for key issues. We have mechanisms in our origination and credit processes to identify and assess environmental and social risks, and dedicated Sustainable Finance teams who review proposed transactions with identified risks. The GRC provides Group-wide oversight on reputational risk, sets policy and monitors material risks. The Group Head of Corporate Affairs is the overall risk control owner for reputational risk. The BVC and BRC provide additional oversight of reputational risk on behalf of the Board At the business level, Responsibility and Reputational Risk Committees have responsibility for managing reputational risk. At country level, the Country Head of Corporate Affairs is the risk control owner of reputational risk. It is his or her responsibility to protect our reputation in that market with the support of the country management team. The Head of Corporate Affairs and Country Chief Executive Officer must actively: Promote awareness and application of our policies and procedures regarding reputational risk Encourage business and functions to take account of our reputation in all decision-making, including dealings with customers and suppliers Implement effective in-country reporting systems to ensure they are aware of all potential issues in tandem with respective business committees Promote effective, proactive stakeholder management through ongoing engagement Pension risk Pension risk is the potential for loss due to having to meet an actuarially assessed shortfall in the Group s pension schemes. The risk assessment is focused on our obligations towards our major pension schemes, ensuring that our funding obligation to these schemes is comfortably within our financial capacity. Pension risk is monitored quarterly. The Group Pension Risk Committee is the body responsible for governance of pension risk and it receives its authority from GRC

252 Capital Capital management Our approach to capital management is to maintain a strong capital base to support the development of our business, to meet regulatory capital requirements at all times and to maintain strong credit ratings. Strategic, business and capital plans are drawn up annually covering a five-year horizon and are approved by the Board. The capital plan ensures that adequate levels of capital and an optimum mix of the different components of capital are maintained to support our strategy. Group Treasury is responsible for the ongoing assessment of the demand for capital and the updating of the Group s capital plan. The capital plan takes the following into account: Current regulatory capital requirements and our assessment of future standards Demand for capital due to business growth forecasts, loan impairment outlook and market shocks or stresses Forecast demand for capital to support credit ratings Available supply of capital and capital raising options The Group formulates a capital plan with the help of internal models and other quantitative techniques. The Group uses a capital model to assess the capital demand for material risks, and supports this with our internal capital adequacy assessment. Other internal models help to estimate potential future losses arising from credit, market and other risks, and, using regulatory formulae, the amount of capital required to support them. In addition, the models enable the Group to gain an enhanced understanding of its risk profile, for example, by identifying potential concentrations and assessing the impact of portfolio management actions. Stress testing and scenario analysis are an integral part of capital planning, and are used to ensure that the Group s internal capital adequacy assessment considers the impact of extreme but plausible scenarios on its risk profile and capital position. They provide an insight into the potential impact of significant adverse events and how these could be mitigated through appropriate management actions. The capital modelling process is a key part of our management discipline. A strong governance and process framework is embedded in our capital planning and assessment methodology. The key capital management committees are the Group Asset and Liability Committee (GALCO) and the Capital Management Committee (CMC). The members of the GALCO include all the Group Executive Directors, the Group Chief Risk Officer and senior attendees from Group Treasury, Finance, Risk and the business. The GALCO regularly reviews the capital plan and approves capital management policies and guidelines. The CMC oversees the tactical management of the Group s capital position and provides a bridge to GALCO s strategic management of the Group s capital position. The GALCO delegates certain authorities to CMC in relation to capital management. The Group s capital position, including its relationship to the Group s risk appetite statement, is regularly considered by the Board Risk Committee (BRC). At a country level, capital is monitored by the Country Asset and Liability Committee (ALCO). Appropriate policies are in place governing the transfer of capital within the Group. Current compliance with Capital Adequacy Regulations In light of the uncertain economic environment and continuing uncertainty as to the end state for banks regulatory capital structures, the Group continues to believe it is appropriate to remain both strongly capitalised and well above regulatory requirements. On 1 April 2013, the UK FSA ceased to exist and from that date, Standard Chartered Bank was authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. The capital that we are required to hold by the PRA is determined by our balance sheet, off-balance sheet, counterparty and other risk exposures. Further detail on counterparty and risk exposures is included in the Risk review on pages 35 to 37. Capital in branches and subsidiaries is maintained on the basis of host regulators requirements and the Group s assessment of capital requirements under normal and stress conditions. Suitable processes and controls are in place to monitor and manage capital adequacy and ensure compliance with local regulatory ratios in all our legal entities. These processes are designed to ensure that we have sufficient capital available to meet local regulatory capital requirements at all times. The table on page 123 summarises the consolidated capital position of the Group. Basel II The Group complies with the Basel II framework, which has been implemented in the UK through the PRA s General Prudential Sourcebook and its Prudential Sourcebook for Banks, Building Societies and Investment Firms. Since 1 January 2008, we have been using the advanced Internal Ratings Based (IRB) approach for the calculation of credit risk capital requirements with the approval of our relevant regulators. This approach builds on our risk management practices and is the result of a significant investment in data warehousing and risk models. We use Value at Risk (VaR) models for the calculation of market risk capital requirements for part of our trading book exposures where permission to use such models has been granted by our relevant regulators. Where our market risk exposures are not approved for inclusion in VaR models, the capital requirements are determined using standard rules provided by the relevant regulator. We apply the Standardised Approach for determining the capital requirements for operational risk. The Group uses IRB models to calculate certain regulatory capital requirements. The Group s models are subject to initial approval, and ongoing supervision by its regulators. The Group believes that the overall performance of its models has been, and continues to be, very conservative. Recently, the PRA has revised its philosophy and approach towards the use and calibration of IRB models. Consequently, the Group is currently in discussions with the PRA regarding changes to some of its IRB models. While the outcome of these discussions and the timetable for implementing any such changes is not fully finalised, the Group currently expects the PRA to require changes in These include changes to the calculation of Exposure At Default (EAD) and the introduction of Loss

253 Capital continued Given Default (LGD) floors based on the Foundation Approach for certain exposures where the country-specific default experience is not deemed sufficient for modelling purposes, resulting in an increase in the risk-weighted requirements calculated by such models. The Group expects these PRA requirements will, in part, be offset by model efficiencies, regulatory approvals of new IRB models and other mitigating management actions. The Group s Pillar 3 Disclosures illustrate both the conservative nature of the Group s models and their robust performance over recent years. The Group currently estimates that the net impact of such model changes in 2014 will be a reduction in the Group s Common Equity Tier 1 (CET1) ratio on a pro forma basis of between 30 and 50bps. CRD IV The Financial Policy Committee (FPC) announced in March 2013 that the PRA should take action to ensure that the level of CET1 capital held by UK banks was above 7 per cent following any required adjustments to reflect a proper valuation of their assets, a realistic assessment of future conduct costs and a prudent calculation of risk weights. The PRA published the results of this exercise on 20 June 2013, confirming that the Group exceeded the 7 per cent CET1 target set by the FPC for the purposes of the exercise and, therefore, did not have a capital shortfall and had no action to take on its capital position. The final text of the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD) which together comprise CRD IV were published in the EU Official Journal on 27 June In Policy Statement PS7/13, the PRA finalised its approach to implementation of the CRD IV rules in December 2013 to come into effect on 1 January The PRA s approach accelerates a number of aspects of CRD IV where there is national discretion to do so, particularly in relation to the definition of CET1. Notwithstanding the development of the CRD IV rules during 2013, the final CRD IV outcome remains uncertain. A number of areas of CRD IV are subject to further consultation or await promulgation of the relevant European Banking Authority (EBA) technical standards and UK implementing rules. Further, the CRD leaves considerable scope for national discretion to be applied

254 Capital continued Capital base Shareholders' equity Parent company shareholders' equity per balance sheet 42,089 36,299 Preference share classified as equity included in Tier 1 capital (1,500) (1,495) Non-controlling interests $million $million 40,589 34,804 Non-controlling interests per balance sheet 4,000 3,581 Non-controlling Tier 1 capital included in other Tier 1 capital (320) (320) Regulatory adjustments 3,680 3,261 Unrealised (gains)/losses on available-for-sale debt securities 70 (97) Unrealised gains on available-for-sale equity shares included in Tier 2 (728) (495) Cash flow hedge reserve (20) (77) Other adjustments (35) Deductions (321) (704) Goodwill and other intangible assets (5,694) (6,954) 50 per cent of excess of expected losses 2 (869) (966) 50 per cent of tax on excess of expected losses per cent of securitisation positions (92) (118) Other regulatory adjustments (2) (42) (6,397) (7,842) Core Tier 1 capital 37,551 29,519 Other Tier 1 capital Preference shares included within shareholder's equity 1,500 1,495 Preference shares included within 'Subordinated debt and other borrowings' Innovative Tier 1 securities (excluding non-controlling Tier 1 capital) 2,577 2,553 Non-controlling Tier 1 capital Deductions 4,397 5, per cent of tax on excess of expected losses per cent of material holdings (537) (552) (277) (314) Total Tier 1 capital 41,671 34,498 Tier 2 capital Qualifying subordinated liabilities 3 Subordinated liabilities and other borrowed funds as per balance sheet 22,147 23,084 Preference shares eligible for Tier 1 capital - (925) Innovative Tier 1 securities eligible for Tier 1 capital (2,577) (2,553) Adjustments relating to fair value hedging and non-eligible securities (1,640) (1,890) Regulatory adjustments 17,930 17,716 Reserves arising on revaluation of available-for-sale equity shares Portfolio impairment provision Deductions per cent of excess of expected losses 2 (869) (966) 50 per cent of material holdings (537) (552) 50 per cent of securitisation positions (92) (118) (1,498) (1,636) Total Tier 2 capital 17,397 16,823 Deductions from Tier 1 and Tier 2 capital (6) (3) Total capital base 59,062 51, Other adjustments include the effect of regulatory consolidation and own credit adjustment Excess of expected losses in respect of advanced IRB portfolios is shown gross of tax benefits Consists of perpetual subordinated debt $3,169 million (2012: $3,147 million) and other eligible subordinated debt $14,761 million (2012: $14,569 million). The amount for 2012 does not agree to note 33 as the prior year was re-stated due to the use of equity accounting for associates and joint ventures

255 Capital continued Movement in total capital Opening Core Tier 1 capital: 29,519 26,176 Ordinary shares issued in the year and share premium 5,700 - Profit attributed to parent company shareholders' for the year 3,215 4,275 Dividends, net of scrip (1,940) (1,473) Decrease/(increase) in goodwill and other intangible assets 1,260 (233) Foreign currency translation differences (1,227) 499 Increase in unrealised gains on available for sale assets (66) (379) Movement in eligible other comprehensive income (26) 878 Net effect of regulatory consolidation and change in non-controlling interests 1,052 - Decrease/(increase) in excess of expected loss, net of tax 119 (212) Decrease/(increase) in securitisation positions 26 (12) Own credit adjustment, net of tax (81) - Closing Core Tier 1 capital 37,551 29,519 Opening Other Tier 1 capital 4,979 4,922 Increase in tax benefit of excess expected loss Decrease/(increase) in material holdings deducted from capital 15 (31) Redeemed capital (925) - Other Closing Other Tier 1 capital 4,120 4,979 Opening Tier 2 capital 16,823 13,665 Issuance of subordinated loan capital, net of redemptions and foreign currency translation differences 214 3,268 Increase in revaluation reserve (Increase)/decrease in portfolio impairment provision (11) 9 Decrease/(increase) in excess of expected loss 97 (263) Increase/(decrease) in material holdings deducted from capital 15 (31) Decrease/(increase) in securitisation positions 26 (12) Closing Tier 2 capital 17,397 16,823 Deductions from total capital (6) (3) Closing total capital 59,062 51,318 $million $million

256 Report of the Directors Directors Report The directors present their report and the audited financial statements of Standard Chartered Bank and its subsidiaries (the Group ) and Standard Chartered Bank (the Company ) for the year ended 31 December Activities The activities of the Group are banking and providing other financial services. The Financial Review on pages 15 to 27 contains a review of the business during Post balance sheet events In addition to the post balance sheet event disclosed in note 45 to the accounts, on 9 January 2014, the Company s ultimate parent Standard Chartered PLC announced that S P Bertamini and R H Meddings would be stepping down from the Board and leaving the Standard Chartered Group on 31 March 2014 and by 30 June 2014 respectively. Both Mr Bertamini and Mr Meddings will resign as Directors of the Company when they step down from the Board of Standard Chartered PLC. Financial instruments Details of financial instruments are given in note 15 to the accounts. Results and dividends The results for the year are given in the income statement on page 132. Interim dividends totalling $1,839 million were paid to ordinary shareholders during the year (2012: $1,372 million). The directors do not recommend the payment of a final dividend (2012: $nil). Share capital Details of the Company s share capital are given in note 36 to the accounts. Loan capital Details of the loan capital are given in note 33 to the accounts. Property, plant and equipment Details of the property, plant and equipment of the Company are given in note 27 to the accounts. Directors and their interests The directors of the Company at the date of this report are: Mr P A Sands, Chairman Mr S P Bertamini Mr J S Bindra Mrs T J Clarke (appointed 14 January 2013) Mr R F Goulding (appointed 14 January 2013) Mr R H Meddings Dr T J Miller (resigned 1 April 2013) Mr A M G Rees Mr V Shankar Mr J P M F Verplancke (appointed 14 January 2013) None of the directors have a beneficial or non-beneficial interest in the shares of the Company or in any of its subsidiary undertakings. Details of directors pay and benefits are disclosed in note 14 to the accounts. All of the directors as at 31 December 2013, except for Mrs Clarke, Messrs Goulding, and Verplancke are directors of the Company s ultimate holding company, Standard Chartered PLC, and their interests in the share capital of that company are shown in its report and accounts

257 Report of the Directors continued Directors Interests in Standard Chartered PLC Ordinary Shares Directors At 1 January 2013 Total interests At 31 December 2013 Total interests T J Clarke 1 50,398 59,202 R F Goulding 1 57, ,886 J P M F Verplancke 1 70,716 80,000 T J Miller 2 193, ,157 1 Mrs T J Clarke, Mr R F Goulding and Mr J P M F Verplancke were appointed as directors on 14 January Their interests represent their holdings on appointment 2 Mr T J Miller resigned as a director on 1 April His interests represent his holding on resignation Share Awards Standard Chartered PLC operates a number of share based arrangements for its directors and employees. Details of these arrangements are included in note 38 to the accounts. Scheme interests awarded during the year Directors Scheme Face Value (GBP) Percentage vesting at threshold Number of shares Performance period end date TJ Clarke PSA 1,444,266 30% 80, Dec-15 DRSA 423, % 23, Dec-12 RF Goulding PSA 1,412,172 30% 78, Dec-15 DRSA 500, % 27, Dec-12 JPMF Verplancke PSA 1,476,360 30% 82, Dec-15 DRSA 539, % 29, Dec-12 T J Miller DRSA 577, % 32, Dec-12 Additional shares from unvested awards Directors Number of shares Performance period end date TJ Clarke 50, ,822 RF Goulding 61, ,116 JPMF Verplancke 63, ,297 T J Miller 87, ,

258 Report of the Directors continued Sharesave Directors As at 1 January Exercise price Awarded during the As at 31 December Grant Date 2013 (pence) period Exercised Lapsed 2013 Period of exercise TJ Clarke 04-Oct-10 1,040 1, , RF Goulding 04-Oct-11 1,429 1, , T J Miller 04-Oct-10 1,040 1, , Conditional share awards in 2011 Directors No of shares awarded No. of shares vesting Value of shares vesting $ 000 TJ Clarke 61,312 20, RF Goulding 85,836 28, JPMF Verplancke 73,574 24, T J Miller 95,033 31, The above table contains details of conditional share awards vesting as a result of a performance period that ended in 2013 Average share price for the last three months of the financial year is GBP14.31 The exchange rate used to convert GBP to $ is

259 Report of the Directors continued Definitions: 2011 Standard Chartered Share Plan (the 2011 Plan) Approved by shareholders in May 2011 this is the Group s main share plan, applicable to all employees with the flexibility to provide a variety of award types. The 2011 Plan is designed to deliver performance shares, deferred awards and restricted shares, giving us sufficient flexibility to meet the challenges of the changing regulatory and competitive environment. Discretionary share awards are a key part of both executive directors and senior management s variable compensation and their significance as a proportion of potential total remuneration is one of the strongest indicators of our commitment to pay for sustainable performance ensuring there is an appropriate return for the risk taken and that the measure is aligned with the Group s risk appetite. Further details regarding the 2011 Plan are included in the Directors Remuneration Report. The remaining life of the plan is seven years. Performance shares (PSA) Performance shares are subject to a combination of three performance measures, Total Shareholder Return (TSR), Earnings Per Share (EPS) and Return on Risk Weighted Assets. The weighting between the three elements is split equally, one third of the award depending on each measure, assessed independently. Performance share awards for executive directors are currently subject to an annual limit of 400 per cent of base salary in face value terms and delivered as nil cost options. Deferred awards (DRSA) Deferred awards are used to deliver the deferred portion of annual performance awards, in line with both market practice and the requirements of the PRA. These awards are subject to a three year deferral period, vesting equally one third on each of the first, second and third anniversaries. These awards are not subject to an annual limit to ensure that regulatory requirements relating to deferral levels can be met and in line with market practice of our competitors. Deferred awards will not be subject to any further performance criteria, although the Group s claw-back policy will apply. Restricted share awards which are made outside of the annual performance process, as additional incentive or retention mechanisms, are provided as restricted shares under the 2011 Plan. These awards vest in equal instalments on the second and the third anniversaries of the award date. In line with similar plans operated by our competitors, restricted share awards are not subject to an annual limit and do not have any performance conditions. Restricted shares 2001 Performance Share Plan (PSP) now closed to new grants The Group s previous plan for delivering performance shares was the PSP. Under the PSP half the award is dependent upon TSR performance and the balance is subject to a target of defined EPS growth. Both measures use the same three-year period and are assessed independently. 1997/2006 Restricted Share Scheme (2006 RSS)/ 2007 Supplementary Restricted Share Scheme (2007 SRSS) The Group s previous plans for delivering restricted shares were the 2006 RSS and 2007 SRSS both now replaced by the 2011 Plan. There remain unvested and vested awards outstanding under these plans. Awards were generally in the form of nil cost options and do not have any performance conditions. Generally deferred restricted share awards vest equally over three years and for non-deferred awards half vests two years after the date of grant and the balance after three years. No further awards will be granted under the 2006 RSS and 2007 SRSS. All Employee Sharesave Plans (2004 International Sharesave, 2004 UK Sharesave and 2013 Sharesave) Under the Sharesave plans, employees have the choice of opening a savings contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares in the Company at a discount of up to 20 per cent on the share price at the date of invitation. There are no performance conditions attached to options granted under the Sharesave plans. In some countries in which the Group operates, it is not possible to operate Sharesave plans, typically due to securities law and regulatory restrictions. In these countries the Group offers an equivalent cash-based plan to its employees. The remaining life of the 2004 Sharesave plans is one year and no further awards will be granted under these plans. A new sharesave scheme, the Standard Chartered 2013 Sharesave Plan was approved by Shareholders at the AGM in May 2013 and new sharesave invitations were made under this plan in September The remaining life of the 2013 Sharesave Plan is nine years. Community Investment The Group recognises its responsibility to invest in the communities where it operates and to act as a good corporate citizen. In 2013, the Group made a total investment of $54.1 million (2012: $62.8 million), or the equivalent of 0.79 per cent of its 2012 operating profit, in the communities in which it operates. This included direct financial support of $15.4 million (2012: $21.4 million), and indirect contributions, which comprise employee time; the donation of non-monetary goods and funds raised by our employees of $38.7 million (2012: $41.4 million). Employees The employment policies of the Company are designed to meet relevant social, statutory and market conditions and practices in each country where it operates. The Company communicates systematically with its employees on a wide range of issues, through briefings to managers, who are encouraged to hold subsequent meetings with staff and through circulars, publications and videos

260 Report of the Directors continued The Company recognises its social and statutory duty to employ disabled people and has followed a policy in the United Kingdom of providing the same employment opportunities for disabled people as for others wherever possible. If employees become disabled, every effort is made to ensure their continued employment with appropriate training where necessary. Risk management The risk management objectives of the Group and Company including the policy for hedging risk is set out in note The Group and Company's exposure to market risk, credit risk, liquidity risk and currency risk are set out in Risk review. Significant contracts There were no contracts of significance during the year in which any of the directors were materially interested. Areas of operation The Company operates through branches and subsidiaries in Asia Pacific, the Middle East, South Asia, Africa, Europe, the United Kingdom and the Americas. Creditor payment policy Operating businesses are responsible for agreeing the terms and conditions with their suppliers in the economies where they conduct business. It is the Company's policy to pay creditors when the amounts fall due for payment. For Standard Chartered Bank in the United Kingdom at 31 December there were 34 days purchases outstanding. Environmental policy The Company recognises that it should minimise any adverse impact of the conduct of its business on the environment. It therefore aims to manage its businesses according to best practice with regard to the use of energy and other resources and by disposing of waste responsibly, by encouraging its customers to ensure that their products, processes and businesses do not damage the environment unnecessarily and by taking environmental considerations into account in business decisions. Qualifying Third Party Indemnities Standard Chartered PLC, the Company's ultimate holding company has granted qualifying third party indemnities to the directors of the Company. These indemnities remain in force at the time of this report. The Company itself has not granted any qualifying third party indemnities to the directors. Social, Ethical and Environmental Responsibilities The Group complies with the guidelines issued by the Association of British Insurers on responsible investment disclosure and is committed to the communities and environments in which it operates. The Court is the equivalent of the Board of Directors for Standard Chartered Bank. The Court is responsible for ensuring that high standards of responsible business are maintained and that an effective control framework is in place. The Group has established and maintains policies and procedures in relation to SEE related risks. Through the Group's risk management structure and control framework, the Court receives regular and adequate information to identify and assess significant risks and opportunities arising from SEE matters. Designated policy owners monitor risks in their area. They also work with line management to assist them in designing procedures to ensure compliance with these requirements. In every country, the Country Management Committee ('MANCO') supported by the Country Operational Risk Group ('CORG') is responsible for ensuring there are risk management frameworks in place to monitor, manage and report SEE risk. The Country Chief Executives chair both the MANCOs and CORGs. Compliance with these policies and procedures is the responsibility of all managers. In assessing, incentivising and rewarding performance, guidance to managers was published during This explicitly states that account should be taken of adherence to all relevant Group policies, including those associated with SEE risk. Significant exceptions and emerging risks are escalated to senior management through clearly documented internal reporting procedures such as MANCO. Key areas of risk are those associated with customers' activities and potential impacts on the natural environment. The Court recognises its responsibility to manage these risks and that failure to manage them adequately would have an adverse impact on the Group's business. These risks are recognised in reaching lending decisions explicitly identified in the Group's lending policies. The Group has adopted the revised Equator Principles 2 that set procedures, based on the International Finance Corporation guidelines, for recognising the environmental and social impacts and risks associated with project finance. The Principles have been embedded in the Group's project finance lending policy and procedures. The Group continues to review and, where appropriate, strengthen its money laundering prevention policies, procedures and training. The Court is not aware of any material exceptions to its policies. Auditor KPMG Audit have agreed to continue as the Company's auditor and a resolution for its re-appointment will be proposed at this year's annual general meeting. The directors have taken all necessary steps to make themselves and KPMG Audit aware of any information needed in performing the audit of the Annual Report and Accounts and as far as each of the directors is aware, there is no relevant audit information of which KPMG Audit is unaware. By order of the Court Durbin Secretary 5 March Company Reference Number: 258

261 Statement of Directors' Responsibilities in respect of the Financial Statements The directors are responsible for preparing the Report of the Directors and the Group and Company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and Company financial statements for each financial year. Under that law they are required to prepare the Group and Company financial statements in accordance with as adopted by the EU and applicable law. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of their profit or loss for that period. In preparing each of the Group and Bank financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; state whether they have been prepared in accordance with as adopted by the EU; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time, the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Directors' responsibility statement The directors confirm to the best of their knowledge: the financial statements prepared in accordance with as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation as a whole; and 2. the management reports, which are incorporated into the report of the directors, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation as a whole, together with the principal risks and uncertainties they face. By order of the Court R H Meddings Director 5 March 259

262 Independent Auditor's Report to the members of Standard Chartered Bank We have audited the financial statements of the Group (Standard Chartered Bank and its subsidiaries) and Bank (Standard Chartered Bank) (together referred to as the 'financial statements') for the year ended 31 December set out on pages to 247. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the EU and, as regards the Bank's financial statements, as applied in accordance with the provisions of the Companies Act This report is made solely to the Bank's members, as a body, in accordance with Chapter 3 of Part of the Companies Act Our audit work has been undertaken so that we might state to the Bank's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group and the Bank's members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Statement of directors' responsibilities set out on page the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. Scope of the audit of the statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website Opinion on financial statements our opinion: the financial statements give a true and fair view of the state of the Group's and of the Bank's affairs as at 31 December and of the Group's profit for the year then ended; the Group financial statements have been properly prepared in accordance with as adopted by the EU; the Bank's financial statements have been properly prepared in accordance with as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Directors' Report which include information presented in the Financial Review that are cross referenced from the Report of Directors, for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the Bank, or returns adequate for our audit have not been received from branches not visited by us; or the Bank's financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors' remuneration specified by law are not made; or we not received all the information and explanations we require for our audit. Canada Square London 5GL 5 March